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, 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 November
5, 1999:
Common Stock, $5.00 Par Value, shares outstanding 1,508,542 shares
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2
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
ASSETS
Cash and due from banks $ 4,949,377 $ 4,720,682 $ 4,086,778
Due from banks - interest bearing 6,060,432 299,430 113,890
-------------- ------------- -------------
Total cash and cash equivalents 11,009,809 5,020,112 4,200,668
Federal funds sold 4,075,000 4,092,000 5,910,000
Investment securities
Available for sale (at fair value) 52,516,728 43,385,571 43,445,757
Held to maturity - Market value of
$10,660,316 at September 30, 1999;
$11,424,327 at December 31, 1998;
and $8,989,089 at September 30, 1998 10,787,539 11,349,829 8,849,892
Loans, net of unearned income 107,812,186 103,555,319 100,594,506
Less allowance for possible loan losses (1,174,164) (1,122,912) (1,109,141)
------------- ------------- -------------
Net loans 106,638,022 102,432,407 99,485,365
Premises and equipment, net 2,906,852 3,204,730 2,970,722
Accrued income receivable 1,368,459 1,242,606 1,156,556
Other assets 1,245,957 667,824 619,836
------------- ------------- -------------
Total assets $ 190,548,366 $ 171,395,079 $ 166,638,796
============= ============= =============
LIABILITIES
Noninterest bearing deposits:
Demand $ 14,956,423 $ 15,141,249 $ 15,375,432
Interest bearing deposits:
Demand 26,107,420 25,130,312 24,141,861
Savings 50,409,864 45,275,810 44,036,683
Time 70,780,522 62,237,448 60,500,052
-------------- -------------- --------------
Total deposits 162,254,229 147,784,819 144,054,028
-------------- -------------- --------------
Repurchase agreements 11,122,282 6,994,024 6,297,329
Accrued interest on deposits 512,332 472,097 479,124
Other liabilities 751,818 683,201 559,945
-------------- -------------- --------------
Total liabilities 174,640,661 155,934,141 151,390,426
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value
1,508,542 shares issued at September 30, 1999
and 1,257,252 shares issued at December 31,
1998 and September 30, 1998 7,542,710 6,286,260 6,286,260
Surplus 4,739,381 4,739,381 4,739,381
Retained Earnings 4,261,669 4,275,249 3,972,419
Accumulated other comprehensive income (636,055) 160,048 250,310
-------------- -------------- --------------
Total stockholders' equity 15,907,705 15,460,938 15,248,370
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 190,548,366 $ 171,395,079 $ 166,638,796
============== ============== ==============
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $2,385,517 $2,257,669 $6,815,385 $6,572,521
Tax-exempt 44,282 53,661 148,881 152,979
Investment securities:
Taxable 773,617 611,734 2,112,828 1,856,630
Tax-exempt 121,364 100,538 384,537 258,401
Other interest income 47,248 41,935 109,867 98,938
Dividends 10,213 7,890 27,113 20,306
Interest on federal funds sold 73,470 74,706 194,642 268,286
--------- --------- --------- ----------
Total interest income 3,455,711 3,148,133 9,793,253 9,228,061
INTEREST EXPENSE
Deposits 1,365,616 1,315,772 3,907,301 3,810,188
Other borrowings 75,278 47,491 195,600 155,806
--------- --------- --------- ----------
Total interest expense 1,440,894 1,363,263 4,102,901 3,965,994
--------- --------- --------- ----------
Net interest income 2,014,817 1,784,870 5,690,352 5,262,067
PROVISION FOR POSSIBLE LOAN LOSSES 97,500 76,500 250,500 179,500
--------- --------- --------- ----------
Net interest income after
for possible loan losses 1,917,317 1,708,370 5,439,852 5,082,567
NONINTEREST INCOME
Service charges 133,768 130,303 375,078 355,468
Securities gains (losses) 54 2,786 12,519 1,178
Gain on sale of building and land -- -- 301,862 --
Other operating income 65,251 85,070 200,684 234,702
--------- --------- --------- ----------
Total noninterest income 199,073 218,159 890,143 591,348
NONINTEREST EXPENSES
Salary and employee benefits 640,778 605,394 1,872,468 1,799,820
Net occupancy and equipment expenses 196,631 202,068 580,472 593,900
Other operating expenses 447,014 364,607 1,142,224 1,013,864
--------- --------- --------- ----------
Total noninterest expense 1,284,423 1,172,069 3,595,164 3,407,584
--------- --------- --------- ----------
Income before income taxes 831,967 754,460 2,734,831 2,266,331
--------- --------- --------- ----------
INCOME TAXES 265,450 238,745 875,908 729,684
--------- --------- --------- ----------
Net income $ 566,517 $ 515,715 $1,858,923 $1,536,647
========= ========= ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,508,542 1,508,542 1,508,542 1,508,542
========= ========= ========= ==========
EARNINGS PER COMMON SHARE * $ 0.38 $ 0.34 $ 1.23 $ 1.02
========= ========= ========= ==========
* Restated to reflect a 20 percent common stock dividend, payable November
18, 1999 to stockholders of record November 1, 1999.
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
nine months ended
September 30, 1999 -- -- -- 1,858,923 -- 1,858,923 1,858,923
Other comprehensive
income, net of tax
Unrealized gains (losses)
on securities, net of
reclassification adjustment
(see disclosure) -- -- -- -- (796,103) (796,103) (796,103)
----------
Comprehensive income $ 1,062,820
20% Common Stock Dividend 251,290 1,256,450 -- (1,256,450) -- --
Cash dividend
($5.41 per share) -- -- -- (616,053) -- (616,053)
---------- ----------- ------------ ---------- ----------- ------------
Balance, September 30, 1999
(Unaudited) 1,508,542 $ 7,542,710 $ 4,261,669 $ 4,261,669 $ (636,055) $ 15,907,705
========== =========== =========== =========== =========== ============
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
nine months ended
September 30, 1998 -- -- -- 1,536,647 -- 1,536,647 1,536,647
Other comprehensive income,
net of tax
Unrealized gains (losses)
on securities, net of
reclassification adjustment
(see disclosure) -- -- -- -- 126,816 126,816 126,816
----------
Comprehensive income $1,663,463
==========
4% Common stock dividend
at fair value 48,167 240,835 975,381 (1,216,216) -- --
Cash dividend
($8.36 per share) -- -- -- (544,088) -- (544,088)
---------- ----------- ---------- ----------- ----------- -----------
Balance,
September 30, 1998
(Unaudited) 1,257,252 $ 6,286,260 $4,739,381 $ 3,972,419 $ 250,310 $15,248,370
========== =========== ========== =========== =========== ===========
For the nine months ended
September 30,
1999 1998
---------- ----------
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during the period $ (803,950) $ 127,558
Less: reclassification adjustment for
gains (losses) included in net income 7,847 742
----------- -----------
Net unrealized gains (losses) on securities $ (796,103) $ 126,816
=========== ===========
The accompanying notes are an integral part of the financial statements
6
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1999 1998
----------------- -------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 1,858,923 $ 1,536,647
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 250,500 179,500
Depreciation and amortization 272,851 281,242
Amortization of investment securities, net (83,319) (56,825)
Investment security losses (gains) (12,519) (1,178)
Gain on sale of building and land (301,862) --
Decrease (increase) in interest receivable (125,853) (80,855)
Increase (decrease) in interest payable 40,235 46,254
Other, net (36,933) 36,247
---------------- -------------
Net cash provided by operating activities 1,862,023 1,941,032
---------------- -------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 17,000 1,022,000
Net (increase) decrease in loans, net of charge offs (4,475,244) (5,526,092)
Proceeds from sales of securities available for sale 1,165,057 6,543
Proceeds from maturities of securities available for sale 38,515,000 25,298,171
Proceeds from maturities of securities held to maturity 2,380,000 735,000
Principal collected on mortgage-backed securities 3,765,631 2,102,441
Purchases of securities available for sale (53,746,083) (29,928,515)
Purchases of securities held to maturity (1,821,321) (4,806,131)
Recoveries on loans previously charged-off 19,129 17,117
Purchases of premises and equipment (91,262) (163,841)
Proceeds from sales of premises and equipment 418,152 --
--------------- -------------
Net cash used by investing activities (13,853,941) (11,243,307)
--------------- -------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 14,469,410 7,009,215
Dividends paid (616,053) (544,088)
Increase (decrease) in short term borrowings 4,128,258 2,222,333
--------------- -------------
Net cash provided by financing activities $ 17,981,615 $ 8,687,460
--------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,989,697 (614,815)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,020,112 4,815,483
---------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 11,009,809 $ 4,200,668
================ =============
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
September 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. On October, 12 1999, the Board of directors of the corporation declared a
6 for 5 stock split in the effect of a 20 percent (20%) common stock dividend
to stockholders of record on November 1, 1999, payable November 18, 1999.
Accordingly, the corporation will issue 251,290 shares of common stock. All
common share data has been restated to include the effect of 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 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 September 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 $566,517 for the three
months ended September 30, 1999 as compared to $515,715 for the same period
during 1998. The increase in earnings during the third quarter of 1999 over
1998 can be primarily attributed to increased net interest income, offset in
part by the increase in operating expenses and the provision for loan losses
and a decrease in noninterest income. Earnings per share were $.38 in the
third quarter of 1999, an increase over the $.34 earned during the third
quarter of 1998.
Net income for the nine months ended September 30, 1999 was $1,858,923
compared to $1,536,647 for the same period during 1998. The increase in
earnings for the nine months ended September 30, 1999 as compared to the same
period in 1998 was primarily due to increased net interest income and
noninterest income, offset in part by increased noninterest expenses and the
provision for loan losses. Earnings per share were $1.23 for the nine months
ended September 30, 1999, an increase of 21.3%, as compared to $1.02 earned
during the same period during 1998.
Net interest income increased $229,947 or 12.9%, for the three
months ended September 30, 1999 as compared to the same period in 1998.
Increases in the average volume of investment securities and loans, offset by
the increase in the interest paid on time deposits primarily contributed to
the increased net interest income during the three months ended September 30,
1999. During the nine month period ended September 30, 1999, the increase in
net interest income 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.
The return on average assets (ROA) was 1.20% and 1.24% for the
three month periods ended September 30, 1999 and 1998, respectively. The ROA
was 1.37% for the nine month period ended September 30, 1999 and 1.26% for the
same period in 1998. The Holding Company's return on average equity (ROE)
was 13.82% for the three months ended September 30, 1999 and 13.80% at
September 30, 1998. For the nine months ended September 30, 1999 compared to
September 30, 1998, ROE was 15.61% and 14.15%, 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)
Three months ended Nine months ended Years ended
September 30, September 30, December 31,
---------------------- --------------------- ----------------------------------
1999 1998 1999 1998 1998 1997 1996
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 3,456 $ 3,148 $ 9,793 $ 9,228 $ 12,452 $ 11,507 $10,067
Total interest expense 1,441 1,363 4,103 3,966 5,324 4,745 3,925
Net interest income 2,015 1,785 5,690 5,262 7,128 6,762 6,142
Provision for loan losses 98 77 250 179 256 131 71
Total other income 199 218 890 591 787 639 568
Total other expenses 1,284 1,172 3,595 3,408 4,674 4,377 4,182
Income before income taxes 832 754 2,735 2,266 2,985 2,893 2,457
Net income 567 516 1,859 1,537 2,033 1,931 1,644
PER SHARE DATA (1)
Net income $ 0.38 $ 0.34 $ 1.23 $ 1.02 $ 1.35 $ 1.28 $ 1.09
Cash dividends declared 0.14 0.12 0.41 0.36 0.49 0.43 0.38
Book value per share 10.55 10.11 10.55 10.11 10.25 9.37 8.39
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $106,451 $100,476 $104,944 $ 98,491 $ 99,345 $ 86,609 $ 74,469
Investment securities 62,664 48,296 59,247 47,101 48,543 51,754 48,557
Deposits - Interest Bearing 144,865 129,294 140,106 126,646 127,520 120,589 112,768
Stockholders' equity 16,283 14,835 15,922 14,527 14,697 13,400 12,186
Total Assets 187,478 165,172 181,000 162,450 164,630 153,290 137,810
SELECTED RATIOS
Return on average assets 1.20% 1.24% 1.37% 1.26% 1.23% 1.26% 1.19%
Return on average equity 13.82% 13.80% 15.61% 14.15% 13.83% 14.41% 13.49%
Average equity to average assets 8.69% 8.98% 8.80% 8.94% 8.93% 8.74% 8.84%
Dividend payout ratio (1) 36.84% 35.29% 33.33% 35.29% 36.30% 33.59% 34.86%
Loan to Deposit ratio 66.45% 69.83% 66.45% 69.83% 70.07% 69.59% 64.19%
BALANCE SHEET September 30, December 31,
--------------------- ---------------------------------
1999 1998 1998 1997 1996
---------- --------- ---------- --------- ----------
Investments $ 63,304 $ 52,296 $ 54,735 $ 45,444 $ 50,440
Loans 107,812 100,594 103,555 95,374 80,417
Other Assets 19,432 13,749 13,105 15,325 13,689
---------- --------- ---------- --------- ----------
Total Assets $ 190,548 $ 166,639 $ 171,395 $ 156,143 $ 144,546
========== ========= ========= ========= = =========
Deposits $ 162,254 $ 144,054 $ 147,785 $ 137,045 $ 125,271
Repurchase agreements 11,122 6,298 6,994 4,075 5,931
Other Liabilities 1,264 1,039 1,155 894 695
Shareholders' Equity 15,908 15,248 15,461 14,129 12,649
---------- --------- ---------- --------- ----------
Total Liabilities and
Shareholders' Equity $ 190,548 $ 166,639 $ 171,395 $ 156,143 $ 144,546
========== ========= ========== ========= ==========
(1) Adjusted for the 6 for 5 stock split in the effect of a twenty (20)
percent common stock dividend, declared October 12, 1999 to shareholders
of Record as of November 1, 1999, 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.
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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 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, 1999 and 1998 and for the nine months
ended September 30, 1999 and 1998, respectively.
Net interest income increased $229,947 or 12.9%, during the three
month period ended September 30, 1999 as compared to 1998. The increase in
net interest income resulted primarily from the increased interest earned on
investment securities and on loans offset in part by the increased interest
paid on time deposits. Interest and dividend income on investment securities
increased $185,032, or 25.7% for the three months ended September 30, 1999 as
compared to the same period in 1998 primarily due to the increase in the
average volume of investments. Interest and fees on loans increased $118,469
or 5.1% during the three month period ended September 30, 1999 as compared to
the same period in 1998 due to the increase in average loan volume. Interest
expense increased $77,631, or 5.7%, during the three month period ended
September 30, 1999, as compared to the same period in 1998 primarily due to
the increase in the average volume of time deposits.
For the nine months ended September 30, 1999, net interest income
increased $428,285 or 8.1%, 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. For the nine
months ended September 30, 1999, interest and dividends on investment
securities increased $389,141 or 18.2% as compared to the same period in
1998. Comparing the nine month period ended September 30, 1999 to the same
period in 1998, interest and fees on loans increased $238,766 or 3.6%
primarily due to the increase in the average loan volume. Interest expense
for the nine months ended September 30, 1999 increased $136,907 or 3.5%
primarily due to the increase in the average volume of time deposits.
Noninterest Income
- -------------------
Noninterest income was $199,073 for the three months ended September 30,
1999, a decrease of $19,086 or 8.7% as compared to the same period of the
prior year and was primarily the result of a decrease in other operating
income offset in part by an increase in service charge income. Other
operating income decreased $19,819 or 23.3% primarily due to a decrease in
other credit card income and a loss of lease income resulting from the sale
of the building and land by the holding company. For the nine months ended
September 30, 1999, noninterest income was $890,143, an increase of $298,795
or 50.5% 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 $19,610 or 5.6%,
as compared to the same period in 1998. Other operating income decreased
$34,018 or 14.5%, during the nine months ended September 30, 1999 as compared
to the same period in 1998 and was primarily due to a decrease in other
credit card income, a loss of lease income resulting from the sale of the
building by the holding company and the gain on sale of other real estate
owned by a subsidiary bank in 1998. During the nine months ended September
30, 1999, the holding company accounted for securities gains of $11,526 and a
securities loss of $662 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.
Noninterest Expense
- --------------------
Noninterest expense increased $112,354 or 9.6% for the three months
ended September 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 September 30, 1999, salary and employee benefits
increased $35,384 or 5.8%. 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
$82,407, or 22.6%, for the three month period ended September 30, 1999 as
compared to the same period in the prior year. Increased service expense,
other operating expense, advertising, and other taxes primarily contributed
to the increase in other operating expenses during the three month period ended
September 30,1999.
Noninterest expense increased $187,580 or 5.5% for the nine months ended
September 30, 1999 as compared to the same period of the prior year. Salary
and employee benefits increased $72,648 or 4.0%. The increase was primarily
attributable to normal annual merit adjustments in salaries. Other operating
expenses increased $128,360 or 12.7%, for the nine month period ended September
30, 1999 as compared to the same period in the prior year. Increased service
expense, other operating expense, other taxes, director fees, and
advertising, offset in part by decreased stationery and supplies expense
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
Average Balance Sheets and Interest Rate Analysis (in thousands)
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, 1999 and September 30, 1998 and the year ended December 31, 1998.
Average balance sheet information as of September 30, 1999 and September 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 nine month periods ended September 30,
1999 and 1998.
For the Nine For the Nine
Months ended Months ended
September 30, 1999 December 31, 1998 September 30, 1998
----------------------------- ------------------------------ ----------------------------
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 $ 45,105 $ 2,034 6.03% $ 38,387 $ 2,399 6.25% $ 38,911 $1,837 6.31%
Obligations of states and
political subdivisions 11,693 385 4.40% 8,155 382 4.68% 7,256 258 4.75%
Other securities 2,449 105 5.73% 2,001 124 6.20% 934 40 5.73%
-------- ------- ------- -------- -------- ------- -------- ------ ------
Total Investment securities: 59,247 2,524 5.70% 48,543 2,905 5.98% 47,101 2,135 6.06%
Interest bearing deposits 2,985 110 4.93% 2,607 138 5.29% 2,410 99 5.49%
Federal funds sold 5,357 195 4.87% 6,085 330 5.42% 6,488 268 5.52%
Loans, net of unearned income 104,944 6,964 8.87% 99,345 9,078 9.14% 98,491 6,726 9.13%
-------- ------- ------- -------- -------- ------- -------- ------ ------
Total earning assets 172,533 9,793 7.59% 156,580 12,451 7.95% 154,490 9,228 7.99%
Cash and due from banks 4,553 4,369 4,327
Bank premises and equipment 3,036 3,056 3,027
Other assets 2,023 1,785 1,776
Allowance for possible loan losses (1,145) (1,160) (1,170)
-------- -------- --------
Total Assets $181,000 $164,630 $162,450
======== ======== ========
LIABILITIES
Certificates of deposit $ 66,249 $ 2,617 5.28% $ 60,277 $ 3,356 5.57% $ 59,808 $ 2,489 5.56%
Savings deposits 48,041 984 2.74% 43,418 1,270 2.93% 43,202 962 2.98%
Interest bearing demand deposits 25,816 306 1.58% 23,825 471 1.98% 23,636 359 2.03%
Federal funds purchased and
Repurchase agreements 8,520 196 3.08% 6,600 227 3.44% 5,708 156 3.65%
-------- ------- ------ -------- -------- ------- -------- ------- -------
Total interest bearing liabilities 148,626 4,103 3.69% 134,120 5,324 3.97% 132,354 3,966 4.01%
Demand deposits 15,161 14,720 14,509
Other liabilities 1,291 1,093 1,060
-------- -------- --------
Total Liabilities 165,078 149,933 147,923
STOCKHOLDERS' EQUITY 15,922 14,697 14,527
-------- -------- --------
Total Liabilities
and Stockholders' Equity $181,000 $164,630 $162,450
======== ======== ========
Net yield on earning assets $ 5,690 4.41% $ 7,127 4.55% $ 5,262 4.55%
======= ====== ======== ======= ======= =======
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, 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 $ 11,693 $ 641 7.33% $ 8,155 $ 637 7.81% $ 7,256 $ 430 7.92%
Loans 104,944 7,064 9.00% 99,345 9,215 9.28% 98,491 6,827 9.27%
========= ======= ===== ========== ======= ====== ======== ======= ======
Total earning assets $ 172,533 $10,149 7.86% $ 156,580 $12,843 8.20% $154,490 $ 9,501 8.22%
========= ======= ===== ========= ======= ====== ======== ======= ======
Taxable equivalent net yield on
earning assets $ 6,046 4.68% $ 7,519 4.80% $ 5,535 4.79%
======= ===== ======= ====== ======= =====
- --------------------------------------------------------------------------------
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 September
30, 1999 and September 30, 1998. Average balance sheet information as of
September 30, 1999 and September 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 September 30,
1999 and 1998.
For the Three For the Three
Months ended Months ended
September 30, 1999 September 30, 1998
--------------------------------- --------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
--------- -------- ------- ------------ -------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 49,193 $ 747 6.02% $ 38,766 $ 605 6.19%
Obligations of states and
political subdivisions 11,222 121 4.28% 8,553 101 4.68%
Other securities 2,249 37 6.53% 977 14 5.69%
---------- -------- ------- ----------- ------- -------
Total Investment Securities 62,664 905 5.73% 48,296 720 5.91%
Interest bearing deposits 3,889 47 4.79% 3,022 42 5.51%
Federal funds sold 5,949 74 4.94% 5,295 75 5.62%
Loans, net of unearned income 106,451 2,430 9.06% 100,476 2,311 9.13%
---------- -------- ------- ----------- ------- -------
Total earning assets 178,953 3,456 7.66% 157,089 3,148 7.95%
Cash and due from banks 4,695 4,399
Bank premises and equipment 2,931 3,002
Other assets 2,056 1,775
Allowance for possible loan losses (1,157) (1,093)
---------- -----------
Total Assets $ 187,478 $ 165,172
========== ==========
LIABILITIES
Certificates of deposit $ 68,798 $ 914 5.27% $ 60,808 $ 856 5.58%
Savings deposits 49,817 356 2.84% 44,052 336 3.03%
Interest bearing demand deposits 26,250 96 1.45% 24,434 124 2.01%
Federal funds purchased and
Repurchase agreements 9,093 75 3.27% 5,187 47 3.59%
---------- -------- ------- ----------- ------- -------
Total interest bearing liabilities 153,958 1,441 3.71% 134,481 1,363 4.02%
Demand deposits 15,857 14,745
Other liabilities 1,380 1,111
---------- -----------
Total Liabilities 171,195 150,337
SHAREHOLDERS' EQUITY 16,283 14,835
---------- -----------
Total Liabilities
and Shareholders' Equity $ 187,478 $ 165,172
========== ==========
Net yield on earning assets $ 2,015 4.47% $ 1,785 4.51%
======= ====== ======= =======
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, 1999 and 1998, respectively. The effect of this adjustment is presented
below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 11,222 $ 202 7.13% $ 8,553 $ 168 7.81%
Loans 106,451 2,459 9.17% 100,476 2,347 9.27%
======= ====== ====== ========== ====== ======
Total earning assets $ 178,953 $ 3,566 7.91% $ 157,089 $ 3,251 8.21%
======= ====== ====== ========== ====== ======
Taxable equivalent net yield on
earning assets $ 2,125 4.71% $ 1,888 4.77%
====== ====== ====== ======
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 $8,568,867 or 15.7% from $54,735,400
at December 31, 1998, to $63,304,267 at September 30, 1999. Taxable securities
comprised 82.2% of total securities at September 30, 1999, as compared to 78.3%
at December 31, 1998. The corporation does not have any securities of issuers,
other than U.S. Government and U.S. Government agencies and corporations,
which exceed 10 percent of stockholders' equity as of September 30, 1999.
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, 1999, the Holding Company had approximately 83% of the
investment portfolio classified as available for sale, while 17% 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 $1,014,761 at September 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 $127,223 at September 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 at
September 30, 1999 and 1998 and at December 31, 1998:
(in thousands) (Unaudited):
September 30, December 31, September 30,
1999 1998 1998
----------- ----------- ------------
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ -- $ -- $ --
Obligations of states
and political subdivisions 10,787 11,350 8,850
------- ------- --------
Total held to maturity $10,787 $11,350 $ 8,850
------- ------- --------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 44,699 $35,107 $ 35,429
Obligations of states
and political subdivisions 508 516 519
Corporate debt securities 602 455 209
Mortgage-backed securities 5,644 6,503 6,517
Equity Securities 1,064 804 772
------- -------- --------
Total available for sale 52,517 43,385 43,446
------- -------- --------
Total $63,304 $54,735 $ 52,296
======= ======== ========
- -------------------------------------------------------------------------------
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 September 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.
September 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 $ -- -- % $ 4,745 5.16 % $ -- -- % $ 5,775 6.01 %
After One But
Within Five Years -- -- 21,807 6.05 -- -- 18,815 5.92
After Five But
Within Ten Years -- -- 18,147 6.71 -- -- 10,517 6.23
After Ten Years -- -- -- -- -- -- -- --
------- ----- ------ ------ ------ ---- -------- -----
-- -- 44,699 6.22 -- -- 35,107 6.03
States & Political Subdivisions
Within One Year 920 6.22 -- -- 950 7.71 -- --
After One But
Within Five Years 3,738 6.53 -- -- 5,099 6.52 -- --
After Five But
Within Ten Years 5,345 6.65 508 7.58 5,121 6.48 516 7.45
After Ten Years 784 6.47 -- -- 180 6.06 -- --
------- ----- ------ ------ ------ ----- -------- -----
10,787 6.56 508 7.58 11,350 6.59 516 7.45
Corporate Debt Securities
Within One Year -- -- 499 5.38 -- -- 349 5.94
After One But
Within Five Years -- -- 103 8.34 -- -- 106 7.98
------- ----- ------- ------ ------ ----- -------- -----
-- -- 602 5.89 -- -- 455 6.42
Mortgage-Backed Securities -- -- 5,644 6.50 -- -- 6,503 6.35
Equity Securities -- -- 1,064 5.25 -- -- 804 5.30
------- ----- ------- ------ ------ ----- -------- -----
Total $ 10,787 6.56 % $ 52,517 6.24 % $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 September 30, 1999 were $107,812,186 as compared to
$103,555,319 as of December 31, 1998, an increase of 4.1%. The loan growth
during 1999 can be attributed primarily to increases in residential real
estate loans, commercial loans and installment loans which increased
approximately $3,314,000, $1,632,000, and $302,000, respectively. Loan
growth was funded principally through the increase in deposits.
Real estate residential loans which include real estate construction,
real estate farmland, and real estate residential loans comprise thirty-six
percent (36%) of the loan portfolio. Commercial loans which include real
estate secured by non-farm, non residential and commercial and industrial
loans comprise thirty-eight percent (38%) of the loan portfolio. Installment
loans comprise twenty-three percent (23%) of the loan portfolio. Other loans
include nonrated industrial development obligations, direct financing leases
and other loans comprise three percent (3%) of the loan portfolio. The
changes in the composition of the loan portfolio from December 31, 1998 to
September 30, 1999 were a 2% increase in real estate residential loans, a 1%
decrease in installment 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) :
September 30, December 31,
------------------------- ----------
1999 1998 1998
Real Estate - Residential
Real estate-construction $ 73 $ 105 $ 41
Real estate-farmland 81 150 133
Real estate-residential 38,587 33,322 35,253
--------- ---------- ----------
$ 38,741 $ 33,577 $ 35,427
--------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 27,711 $ 26,777 $ 25,866
Commercial & industrial 13,048 11,487 13,261
--------- ---------- ----------
$ 40,759 $ 38,264 $ 39,127
--------- ---------- ----------
Installment
Installment and other
loans to individuals $ 25,024 $ 25,081 $ 24,722
--------- ---------- ----------
Others
Nonrated industrial
development obligations $ 2,948 $ 3,658 $ 3,563
Other loans 439 117 819
--------- ---------- ----------
$ 3,387 $ 3,775 $ 4,382
--------- ---------- ----------
Total 107,911 100,697 103,658
Less unearned interest 99 103 103
--------- ---------- ----------
$ 107,812 $ 100,594 $ 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 September 30,
1999 and December 31, 1998 (in thousands) (Unaudited):
September 30, 1999
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 978 $ 6,911 $ 5,159
Real Estate - construction 73 -- --
-------- --------- ---------
Total $ 1,051 $ 6,911 $ 5,159
======== ======== ========
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
September 30, 1999 and December 31, 1998 along with the contractual
maturities of loans other than installment loans and residential mortgages
(in thousands) (Unaudited):
September 30, 1999
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 606 $ 5,119 $ 1,271
Variable Rates 445 1,792 3,888
--------- --------- ---------
Total $ 1,051 $ 6,911 $ 5,159
======== ======== ========
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 $810,000 at September 30, 1999 and $664,000
at December 31, 1998, an increase of 22.0%. Loans classified as non-accrual
were $537,000 or .5% of total loans as of September 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 September 30, 1999 and 1998, respectively. The
loans past due 90 days or more increased $5,000 to $273,000 at September 30,
1999 from $268,000 at December 31, 1998. There was no other real estate
owned at September 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):
September 30, December 31,
----------------- ------------
1999 1998 1998
Past Due 90 Days or More:
Real Estate - residential $ 88 $ 115 $ 76
Commercial 32 117 4
Installment 153 124 188
------ ------- ------------
$ 273 $ 356 $ 268
------ ------- ------------
Non-accrual:
Real Estate - residential $ 2 $ 16 $ 106
Commercial 460 260 184
Installment 75 96 106
------ ------- ------------
$ 537 $ 372 $ 396
------ ------- ------------
Other Real Estate $ -- $ -- $ --
------ ------- ------------
Total non-performing assets $ 810 $ 728 $ 664
====== ====== ===========
Total non-performing assets
to total loans and
other real estate 0.75% 0.72% 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 $30,200 and
$23,800 for the periods ended September 30, 1999 and 1998, respectively.
As of September 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. Table Nine presents a summary of the Allowance for
Possible Loan Losses. The provision for loan losses increased to $250,500
during the nine months ended September 30, 1999, from $179,500 during the same
period of the prior year. The allowance for possible loan losses represented
1.1% of loans outstanding as of September 30, 1999 and December 31, 1998. Net
loan charge-offs were $199,000 for the nine month period ended September 30,
1999. The net charge-offs were primarily consumer 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
-----------------------------------
September 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 14 65 65
Commercial 16 134 134
Installment 188 106 173
-------- -------- ----------
218 305 372
Recoveries:
Real Estate - residential -- 5 5
Commercial -- -- --
Installment 19 12 16
-------- -------- ----------
19 17 21
Net Charge-offs 199 288 351
Additions Charged to Operations 250 179 256
-------- -------- ----------
Balance at end of period: $ 1,174 $ 1,109 $ 1,123
======== ======= =========
Average Loans Outstanding $ 104,944 $ 98,491 $ 99,345
======== ======= =========
Ratio of net charge-offs
to Average loans
outstanding for the period .19% .29% .35%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.09% 1.10% 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, local
economic conditions and management experience as presented in Table Nine.
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 nine
month period ended September 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.
September 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 $ 238 35.9% $ 208 34.2% $ 202 34.6% $ 192 36.5% $ 215 39.9% $216 43.1%
Commercial 490 37.8 490 37.8 622 38.0 619 39.1 618 36.5 420 34.7
Installment 426 23.2 374 23.8 343 23.6 298 21.6 265 20.0 260 19.3
Others 20 3.1 20 4.2 20 3.8 20 2.8 20 3.6 20 2.9
Unallocated -- -- 31 -- 31 -- 31 -- 31 -- 31 -
------ ----- ------ ----- ---- ----- ---- ----- ---- ------ ---- ------
Total $1,174 100.0% $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 $162,254,229 at September 30, 1999 as compared to
$147,784,819 at December 31, 1998, an increase of 9.8%. Deposit growth
increased primarily in savings and time deposits. Savings and time
deposits grew primarily as a result of consumers selecting higher yielding
products and the special promotions of time deposits offered by the
subsidiary banks.
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, 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 $ 5,527 $ 2,837 $ 3,155 $ 3,669 $ 15,188
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 $11,122,282 at September
30, 1999, an increase of $4,128,258, 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.
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 8.0% during the first nine
months of 1999 entirely from current earnings after quarterly dividends, and
a decrease of 5.1% resulting from the effect of the change in the net
unrealized gain (loss) on securities available for sale. Stockholders'
equity amounted to 8.4% of total assets at September 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.
- ------------------------------------------------------------------------------
21
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
The following chart shows the regulatory capital levels for the
company at September 30, 1999, September 30, 1998, and December 31, 1998:
September 30, Dec. 31
-------------- -------
Ratio Minimum 1999 1998 1998
- ---------------------- -------- ------- ----- -----
Leverage Ratio 3% 8.4 8.9 8.7
Risk Based Capital
Tier 1 (core) 4% 13.8 13.9 13.9
Tier 2 (total) 8% 14.8 14.9 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
$52,516,728 classified as available for sale at September 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 September 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 September 30, 1999 there were no borrowings outstanding
pursuant to these agreements.
At September 30, 1999 the Holding Company had outstanding loan commitments
and unused lines of credit totaling $9,345,000. As of September 30, 1999,
management placed a high probability for required funding within one year of
approximately $5,904,000. Approximately $3,108,000 is principally unused
home equity and credit card lines on which management places a low probability
for required funding.
Other Matters
- --------------
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.
22
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Other Matters - continued
- --------------------------
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. 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, 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 September
30, 1999.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 25 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
24
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: November 5, 1999
25
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.
EX-11.1
COMPUTATION OF PER SHARE EARNINGS
26
EXHIBIT 11.1
Statement Regarding Computation of Per Share Earnings
27
Computation of Earnings Per Share
- ---------------------------------
The following formula was used to calculate the earnings per share, Consolidated
Statements of Income for the nine months ended September 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
Nine months ended
September 30,
1999 1998
------- -------
Weighted Average
Shares Outstanding 1,508,542 1,508,542
Net Income 1,858,923 1,536,647
Per Share Amount 1.23 1.02
No common stock equivalents exist.
EX-13.3
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
28
EXHIBIT 13.3
Summarized Quarterly Financial Information
29
- --------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- --------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
1999 Quarter Quarter Quarter
------------- ------------- ------------
Total interest income $ 3,117,090 $ 3,220,452 $ 3,455,711
Total interest expense 1,321,239 1,340,768 1,440,894
Net interest income 1,795,851 1,879,684 2,014,817
Provision for loan losses 76,500 76,500 97,500
Investment Securities gain (loss) 9,153 3,312 54
Total other income 198,994 479,611 199,019
Total other expenses 1,133,286 1,177,455 1,284,423
Income before income taxes 794,212 1,108,652 831,967
Net income 548,216 744,190 566,517
Net income per share (1) .36 .49 .38
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) .35 .33 .34 .33
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) .32 .31 .33 .32
(1) Adjusted for the 6 for 5 stock split in the effect of a twenty (20)
percent common stock dividend, declared October 12, 1999 to
shareholders of record as of November 1, 1999; a 4 percent common
stock dividend to stockholders of record as of October 1, 1998; the 3
for 2 stock split in the effect of a 50% stock dividend to
stockholders of record as of October 1, 1997.
- --------------------------------------------------------------------------------