<PAGE>
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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
------------- -------------
Commission File No. 1-13652
First West Virginia Bancorp, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-6051901
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1701 Warwood Avenue
Wheeling, West Virginia 26003
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 277-1100
----------------
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months ( or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No [X] N/A
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practible date.
The number of shares outstanding of the issuer's common stock as of
November 5, 1998:
Common Stock, $5.00 Par Value, shares outstanding 1,257,252 shares
- ---------------------------------------------------------------------
<PAGE>
2
FIRST WEST VIRGINIA BANCORP, INC.
PART I
FINANCIAL INFORMATION
<PAGE>
3
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,086,778 $ 4,718,516 $ 4,498,189
Due from banks - interest bearing 113,890 96,967 88,112
-------------- -------------- --------------
Total cash and cash equivalents 4,200,668 4,815,483 4,586,301
Federal funds sold 5,910,000 6,932,000 4,374,000
Investment securities
Available for sale (at market value) 43,445,757 40,665,808 47,933,408
Held to maturity - Market value of
$8,989,089 at September 30, 1998 ;
$4,837,574 at December 31, 1997;
and $4,777,946 at September 30, 1997 8,849,892 4,778,146 4,719,493
Loans, net of unearned income 100,594,506 95,373,653 91,476,574
Less allowance for possible loan losses (1,109,141) (1,217,763) (1,197,027)
-------------- -------------- --------------
Net loans 99,485,365 94,155,890 90,279,547
Premises and equipment, net 2,970,722 3,085,087 3,105,589
Accrued income receivable 1,156,556 1,075,701 1,276,644
Other assets 618,824 630,420 650,803
Intangible assets 1,012 4,048 5,060
-------------- -------------- --------------
Total assets $ 166,638,796 $ 156,142,583 $ 156,930,845
============== ============== ==============
LIABILITIES
Noninterest bearing deposits:
Demand $ 15,375,432 $ 14,142,125 $ 14,384,482
Interest bearing deposits:
Demand 24,141,861 22,908,421 23,022,897
Savings 44,036,683 42,037,038 43,892,293
Time 60,500,052 57,957,229 56,450,631
-------------- -------------- --------------
Total deposits 144,054,028 137,044,813 137,750,303
-------------- -------------- --------------
Repurchase agreements 6,297,329 4,074,996 4,494,987
Accrued interest on deposits 479,124 432,870 419,828
Other liabilities 559,945 460,909 469,646
-------------- -------------- --------------
Total liabilities 151,390,426 142,013,588 143,134,764
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 1,257,252 shares issued at
September 30, 1998 1,209,085 shares issued
at December 31, 1997; and 1,209,085 shares
issued at September 30, 1997 6,286,260 6,045,425 6,045,425
Surplus 4,739,381 3,764,000 3,764,000
Retained Earnings 3,972,419 4,196,076 3,890,518
Accumulated other comprehensive income 250,310 123,494 96,138
-------------- -------------- --------------
Total stockholders' equity 15,248,370 14,128,995 13,796,081
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 166,638,796 $ 156,142,583 $ 156,930,845
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
4
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $2,257,669 $2,019,749 $6,572,521 $5,682,446
Tax-exempt 53,661 35,099 152,979 88,472
Investment securities:
Taxable 611,734 749,512 1,856,630 2,210,926
Tax-exempt 100,538 63,831 258,401 200,798
Other interest income 41,935 3,564 98,938 27,793
Dividends 7,890 6,109 20,306 16,654
Interest on federal funds sold 74,706 76,858 268,286 271,137
---------- ---------- ---------- ----------
Total interest income 3,148,133 2,954,722 9,228,061 8,498,226
INTEREST EXPENSE
Deposits 1,315,772 1,185,351 3,810,188 3,331,075
Other borrowings 47,491 38,834 155,806 142,431
---------- ---------- ---------- ----------
Total interest expense 1,363,263 1,224,185 3,965,994 3,473,506
---------- ---------- ---------- ----------
Net interest income 1,784,870 1,730,537 5,262,067 5,024,720
PROVISION FOR POSSIBLE LOAN LOSSES 76,500 34,500 179,500 96,000
---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses 1,708,370 1,696,037 5,082,567 4,928,720
NONINTEREST INCOME
Service charges 130,303 108,016 355,468 304,057
Securities gains (losses) 2,786 -- 1,178 --
Other operating income 85,070 64,599 234,702 196,358
---------- ---------- ---------- ----------
Total noninterest income 218,159 172,615 591,348 500,415
NONINTEREST EXPENSES
Salary and employee benefits 605,394 569,043 1,799,820 1,711,545
Net occupancy and equipment expenses 202,068 200,494 593,900 574,841
Other operating expenses 364,607 346,806 1,013,864 966,360
---------- ---------- ---------- ----------
Total noninterest expense 1,172,069 1,116,343 3,407,584 3,252,746
---------- ---------- ---------- ----------
Income before income taxes 754,460 752,309 2,266,331 2,176,389
---------- ---------- ---------- ----------
INCOME TAXES 238,745 249,632 729,684 722,620
---------- ---------- ---------- ----------
Net income $ 515,715 $ 502,677 $1,536,647 $1,453,769
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,257,252 1,257,252 1,257,252 1,257,252
========== ========== ========== ==========
EARNINGS PER COMMON SHARE * $ 0.41 $ 0.40 $ 1.22 $ 1.16
========== ========== ========== ==========
</TABLE>
* Restated to reflect a 4 percent common stock dividend, payable
October 26, 1998 to stockholders of record October 1, 1998.
The accompanying notes are an integral part of the financial statements
<PAGE>
5
<TABLE>
<CAPTION>
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Common Stock Other
----------------------- Comprehensive Retained Comprehensive
Shares Amount Surplus Income Earnings Income Total
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 $1,663,463
==========
4% Common stock dividend at fair market
value 48,167 240,835 975,381 (1,216,216) --
Cash dividend
($.43 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
========== ========== ========== ========== ========== ===========
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during the period $ 127,558
Less: reclassification adjustment for
gains (losses) included in net income 742
----------
Net unrealized gains (losses) on securities $ 126,816
==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
----------------------- Comprehensive Retained Comprehensive
Shares Amount Surplus Income Earnings Income Total
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 806,107 $4,030,535 $3,764,000 $4,935,303 $ (80,560) $12,649,278
Comprehensive income
Net income for the nine months
ended September 30, 1997 -- -- -- $1,453,769 1,453,769 -- 1,453,769
Other comprehensive income, net of tax
Unrealized gains (losses) on securities,
net of reclassification adjustment
(see disclosure) -- -- -- 176,698 -- 176,698 176,698
----------
Comprehensive income $1,630,467
==========
50% Common stock dividend at par
value 402,978 2,014,890 (2,014,890) --
Cash dividend
($.38 per share) -- -- -- (483,664) -- (483,664)
---------- ---------- ---------- ---------- ---------- -----------
Balance, September 30, 1997 (Unaudited) 1,209,085 $6,045,425 $3,764,000 $3,890,518 $ 96,138 $13,796,081
========== ========== ========== ========== ========== ===========
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during the period $ 176,698
Less: reclassification adjustment for
gains (losses) included in net income --
----------
Net unrealized gains (losses) on securities $ 176,698
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
6
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,536,647 $ 1,453,769
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 179,500 96,000
Depreciation and amortization 281,242 276,002
Amortization of investment securities, net (56,825) (33,855)
Investment security losses (gains) (1,178) --
Decrease (increase) in interest receivable (80,855) (328,618)
Increase (decrease) in interest payable 46,254 34,539
Other, net 36,247 (80,803)
------------ ------------
Net cash provided by operating activities 1,941,032 1,417,034
------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 1,022,000 1,087,000
Net (increase) decrease in loans, net of charge offs (5,526,092) (11,130,037)
Proceeds from sales of securities available for sale 6,543 --
Proceeds from maturities of securities available for sale 25,298,171 10,250,000
Proceeds from maturities of securities held to maturity 735,000 2,000,000
Principal collected on mortgage-backed securities 2,102,441 620,678
Purchases of securities available for sale (29,928,515) (13,607,139)
Purchases of securities held to maturity (4,806,131) (1,163,900)
Recoveries on loans previously charged-off 17,117 10,868
Purchases of premises and equipment (163,841) (129,130)
------------ ------------
Net cash used by investing activities (11,243,307) (12,061,660)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 7,009,215 12,479,235
Dividends paid (544,088) (483,664)
Increase (decrease) in short term borrowings 2,222,333 (1,435,704)
------------ ------------
Net cash provided by financing activities $ 8,687,460 $ 10,559,867
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (614,815) (84,759)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,815,483 4,671,060
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,200,668 $ 4,586,301
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
7
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 AND 1997
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, 1997, should be read in conjunction with these
financial statements.
2. On September 8, 1998, the corporation declared a 4 percent common stock
dividend to stockholders of record on October 1, 1998, payable October 26,
1998. Accordingly, the corporation issued 48,167 shares of common stock.
All common share data 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 1998
presentation.
<PAGE>
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, 1998 and 1997. 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 1997 financial statements, the notes thereto and
the related Management's Discussion and Analysis.
OVERVIEW
The Holding Company reported net income of $515,715 for the three months
ended September 30, 1998 as compared to $502,677 for the same period during
1997. The increase in earnings during the third quarter of 1998 over 1997
can be primarily attributed to increased net interest income and noninterest
income, offset in part by increased operating expenses and the provision for
loan losses. Earnings per share were $.41 in the third quarter of 1998, an
increase over the $.40 earned during the third quarter of 1997.
Net income for the nine months ended September 30, 1998 was $1,536,647
compared to $1,453,769 for the same period during 1997. The increase in
earnings for the nine months ended September 30, 1998 as compared to the same
period in 1997 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 $1.22 for the nine months
ended September 30, 1998, an increase of 6.6%, as compared to $1.16 earned
during the same period during 1997.
Operational earnings were improved with net interest income increasing
$54,333 or 3.1%, for the three months ended September 30, 1998 as compared to
the same period in 1997. During the three month period ended September 30,
1998, net interest income increased primarily from the increase in the
average volume of loans, offset in part by the increased interest paid on
time deposits and the decrease in the average volume of investment
securities. During the nine month period ended September 30, 1998, the
increase in net interest income was primarily due to the increased interest
earned on the average volume of 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 1.24% for the three month period
ended September 30, 1998 as compared to 1.29% for the same period of the prior
year. The ROA was 1.26% for the nine month period ended September 30, 1998 and
1.28% for the same period in 1997. Return on average equity (ROE) measures the
return on the stockholders' investment. The Holding Company's ROE was 13.80%
for the three months ended September 30, 1998 and 14.69% at
September 30, 1997. For the nine months ended September 30, 1998 compared to
September 30, 1997, ROE was 14.15% and 14.81%, 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.
<PAGE>
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)
<TABLE>
<CAPTION>
First West Virginia Bancorp, Inc.
Three months ended Nine months ended Years ended
September 30, September 30, December 31,
--------------------- --------------------- ----------------------------------
1998 1997 1998 1997 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Total interest income $ 3,148 $ 2,955 $ 9,228 $ 8,498 $ 11,507 $ 10,067 $ 8,937
Total interest expense 1,363 1,224 3,966 3,474 4,745 3,925 3,421
Net interest income 1,785 1,731 5,262 5,024 6,762 6,142 5,516
Provision for loan losses 77 35 179 96 131 71 50
Total other income 218 172 591 501 639 568 738
Total other expenses 1,172 1,116 3,408 3,253 4,377 4,182 4,007
Income before income taxes 754 752 2,266 2,176 2,893 2,457 2,198
Net income 516 503 1,537 1,454 1,931 1,644 1,470
PER SHARE DATA (1)
Net income $ 0.41 $ 0.40 $ 1.22 $ 1.16 $ 1.54 $ 1.31 $ 1.17
Cash dividends declared (2) 0.14 0.13 0.43 0.38 0.52 0.46 0.33
Book value per share 12.13 10.97 12.13 10.97 11.24 10.06 9.31
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $100,476 $ 88,575 $ 98,491 $ 84,120 $ 86,609 $ 74,469 $ 66,058
Investment securities 48,296 52,824 47,101 52,641 51,754 48,557 46,020
Deposits - Interest Bearing 129,294 123,226 126,646 119,646 120,589 112,768 100,488
Long-term debt -- -- -- -- -- -- --
Stockholders' equity 14,835 13,583 14,527 13,128 13,400 12,186 11,170
Total Assets 165,172 155,139 162,450 151,860 153,290 137,810 124,145
SELECTED RATIOS
Return on average assets 1.24% 1.29% 1.26% 1.28% 1.26% 1.19% 1.18%
Return on average equity 13.80% 14.69% 14.15% 14.81% 14.41% 13.49% 13.16%
Average equity to average assets 8.98% 8.76% 8.94% 8.64% 8.74% 8.84% 9.00%
Dividend payout ratio (1) (2) 34.15% 32.50% 35.25% 32.76% 33.77% 35.11% 28.21%
Loan to Deposit ratio 69.83% 66.41% 69.83% 66.41% 69.59% 64.19% 62.67%
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET September 30, December 31,
--------------------- ----------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investments $ 52,296 $ 52,653 $ 45,444 $ 50,440 $ 45,996
Loans 100,594 91,477 95,374 80,417 72,006
Other Assets 13,749 12,801 15,325 13,689 9,953
-------- -------- -------- -------- --------
Total Assets $166,639 $ 156,931 $156,143 $ 144,546 $127,955
======== ======== ======== ======== ========
Deposits $144,054 $137,750 $137,045 $ 125,271 $114,895
Repurchase agreements 6,298 4,495 4,075 5,931 749
Other Liabilities 1,039 890 894 695 602
Shareholders' Equity 15,248 13,796 14,129 12,649 11,709
-------- -------- -------- -------- --------
Total Liabilities and
Shareholders' Equity $166,639 $156,931 $156,143 $ 144,546 $127,955
======== ======== ======== ======== ========
</TABLE>
<PAGE>
(1) Adjusted for a 4 percent common stock dividend to stockholders of record as
of October 1, 1998, payable October 26, 1998; a 3 for 2 stock split in the
effect of a fifty (50) percent common stock dividend to shareholders of
record as of October 1, 1997; a 4 percent common stock dividend to
stockholders of record as of December 2, 1996, a 2 percent common stock
dividend to stockholders of record as of December 1, 1995.
(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.
<PAGE>
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, 1998 and 1997 and for the nine months ended September 30, 1998 and
1997, respectively.
Net interest income increased $54,333 or 3.1%, during the three month
period ended September 30, 1998 as compared to 1997. The increase in net
interest income resulted primarily from the increased interest earned on
loans offset in part by the decreased interest earned on investment
securities and the increased interest paid on time deposits. Interest and
fees on loans increased $256,482 or 12.5% during the three month period ended
September 30, 1998 as compared to the same period in 1997 due to the increase
in average loan volume. Interest and dividend income on investment
securities decreased $99,290, or 12.1% for the three months ended
September 30, 1998 as compared to the same period in 1997 primarily due to
the decrease in the average volume of investments. Interest expense
increased $139,078, or 11.4%, during the three month period ended
September 30, 1998, as compared to the same period in 1997 primarily due
to the increase in the average volume of time deposits.
For the nine months ended September 30, 1998, net interest income increased
$237,347 or 4.7%, as compared to 1997. This increase was largely due to the
increased interest earned on loans offset in part by the decreased interest
earned on investment securities and the increased interest paid on time
deposits. Comparing the nine month period ended September 30, 1998 to the
same period in 1997, interest and fees on loans increased $954,582 or 16.5%
primarily due to the increase in the average loan volume. For the nine months
ended September 30, 1998, interest and dividends on investment securities
decreased $293,041 or 12.1% as compared to the same period in 1997. Interest
expense for the nine months ended September 30, 1998 increased $492,488 or
14.2% primarily due to the increase in the average volume of time deposits.
Noninterest Income
- -------------------
Noninterest income increased $45,544 or 26.4% for the three months ended
September 30, 1998 as compared to the same period of the prior year. Service
charges represent the major component of noninterest income. These charges are
earned from assessments made on checking and savings accounts. Service charges
increased $22,287 during the three month period ended September 30, 1998, up
20.6%, as compared to the same period of the prior year. The increase in
service charges in 1998 was primarily due to an increase in the number of
charges assessed on deposit accounts. Other operating income increased
$20,471 or 31.7% primarily due to the increased automated teller machine (ATM)
fees.
For the nine months ended September 30, 1998, noninterest income increased
$90,933 or 18.2% as compared to the same period in 1997. Service charges on
checking and savings accounts contributed to the increased noninterest income.
Service charges increased $51,411 or 16.9%, as compared to the same period in
1997. Other operating income increased $38,344 during the nine months ended
September 30, 1998 as compared to the same period of the prior year and was
primarily attributable to the increased ATM fees. The investment securities
gain during the nine month period ended September 30, 1998 was attributable
to the holding company's sale of marketable equity securities available for
sale.
Non-Interest Expense
- --------------------
Noninterest expense increased $55,726 or 5.0% for the three months ended
September 30, 1998 as compared to the same period of the prior year. Salary and
employee benefits is the largest component of non-interest expense. During the
quarter ended September 30, 1998, salary and employee benefits increased $36,351
or 6.4%. The increase was primarily attributable to normal annual merit
adjustments in salaries. Other operating expenses increased $17,801 or 5.1% for
the three months ended September 30, 1998 as compared to the same period of the
prior year. Increased stationery and supplies expense and other expenses offset
in part by decreased advertising expenses primarily contributed to the increase
in other operating expenses.
Noninterest expense increased $154,838 or 4.8% for the nine months ended
September 30, 1998 as compared to the same period of the prior year. During the
nine months ended September 30, 1998, salary and employee benefits increased
$88,275 or 5.2%. 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 $47,504, or 4.9%, for the nine
month period ended September 30, 1998 as compared to the same period in the
prior year. Increased stationery and supplies expense, service expense,
other expense, and other taxes, offset in part by decreased directors fees
primarily contributed to the increase in other operating expenses during 1998.
<PAGE>
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, 1998 and September 30, 1997 and the year ended December 31, 1997.
Average balance sheet information as of September 30, 1998 and September 30,
1997 and the year ended December 31, 1997 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,
1998 and 1997.
<TABLE>
<CAPTION>
For the Nine For the Nine
Months ended Months ended
September 30, 1998 December 31, 1997 September 30, 1997
----------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- ------- ------ -------- ------- ------ -------- ------- ------
(expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 38,911 $ 1,837 6.31% $ 45,157 $ 2,861 6.34% $ 45,904 $ 2,174 6.33%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Obligations of states and
political subdivisions 7,256 258 4.75% 5,470 264 4.83% 5,551 201 4.84%
Other securities 934 40 5.73% 1,127 69 6.12% 1,186 54 6.09%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total Investment securities: 47,101 2,135 6.06% 51,754 3,194 6.17% 52,641 2,429 6.17%
Interest bearing deposits 2,410 99 5.49% 533 28 5.25% 680 27 5.31%
Federal funds sold 6,488 268 5.52% 6,561 357 5.44% 6,702 271 5.41%
Loans, net of unearned income 98,491 6,726 9.13% 86,609 7,928 9.15% 84,120 5,771 9.17%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total earning assets 154,490 9,228 7.99% 145,457 11,507 7.91% 144,143 8,498 7.88%
Cash and due from banks 4,327 4,104 4,086
Bank premises and equipment 3,027 3,178 3,192
Other assets 1,776 1,741 1,623
Allowance for possible loan losses (1,170) (1,190) (1,184)
-------- -------- --------
Total Assets $162,450 $153,290 $151,860
======== ======== ========
LIABILITIES
Certificates of deposit $ 59,808 $ 2,489 5.56% $ 55,149 $ 2,945 5.34% $ 54,395 $ 2,149 5.28%
Savings deposits 43,202 962 2.98% 41,376 1,102 2.66% 40,838 796 2.61%
Interest bearing demand deposits 23,636 359 2.03% 24,064 509 2.12% 24,412 387 2.12%
Federal funds purchased and
Repurchase agreements 5,708 156 3.65% 5,118 189 3.69% 5,193 142 3.66%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest bearing liabilities 132,354 3,966 4.01% 125,707 4,745 3.77% 124,838 3,474 3.72%
Demand deposits 14,509 13,235 12,983
Other liabilities 1,060 948 911
-------- -------- --------
Total Liabilities 147,923 139,890 138,732
STOCKHOLDERS' EQUITY 14,527 13,400 13,128
-------- -------- --------
Total Liabilities
and Stockholders' Equity $162,450 $153,290 $151,860
======== ======== ========
Net yield on earning assets $ 5,262 4.55% $ 6,762 4.65% $ 5,024 4.66%
======= ====== ======= ====== ======= ======
</TABLE>
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,
1998 and 1997, and the year ended December 31, 1997, respectively. The effect
of this adjustment is presented below (in thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of states and
political subdivisions:
Investment securities $ 7,256 $ 430 7.92% $ 5,470 $ 440 8.04% $ 5,551 $ 335 8.07%
Loans 98,491 6,827 9.27% 86,609 8,018 9.26% 84,120 5,830 9.27%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total earning assets $154,490 $ 9,501 8.22% $145,457 $11,773 8.09% $144,143 $ 8,691 8.06%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Taxable equivalent net yield on
earning assets $ 5,535 4.79% $ 7,028 4.83% $ 5,217 4.84%
======= ====== ======= ====== ======= ======
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
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, 1998 and September 30, 1997. Average balance sheet information as of
September 30, 1998 and September 30, 1997 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, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three For the Three
Months ended Months ended
September 30, 1998 September 30, 1997
----------------------------------- -------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
----------- --------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities:
U.S. Treasury and other U.S.
Government agencies $ 38,766 $ 605 6.19% $ 46,211 $ 738 6.34%
Obligations of states and
political subdivisions 8,553 101 4.68% 5,381 64 4.72%
Other securities 977 14 5.69% 1,232 18 5.80%
----------- --------- ------- ----------- -------- -------
Total Investment Securities 48,296 720 5.91% 52,824 820 6.16%
Interest bearing deposits 3,022 42 5.51% 201 3 5.92%
Federal funds sold 5,295 75 5.62% 5,564 77 5.49%
Loans, net of unearned income 100,476 2,311 9.13% 88,575 2,055 9.20%
----------- --------- ------- ----------- -------- -------
Total earning assets 157,089 3,148 7.95% 147,164 2,955 7.97%
Cash and due from banks 4,399 4,193
Bank premises and equipment 3,002 3,140
Other assets 1,775 1,843
Allowance for possible loan losses (1,093) (1,201)
----------- -----------
Total Assets $ 165,172 $ 155,139
=========== ===========
LIABILITIES
Certificates of deposit $ 60,808 $ 856 5.58% $ 55,893 $ 757 5.37%
Savings deposits 44,052 336 3.03% 43,779 302 2.74%
Interest bearing demand deposits 24,434 124 2.01% 23,554 126 2.12%
Federal funds purchased and
Repurchase agreements 5,187 47 3.59% 4,129 39 3.75%
----------- --------- ------- ----------- -------- -------
Total interest bearing liabilities 134,481 1,363 4.02% 127,355 1,224 3.81%
Demand deposits 14,745 13,231
Other liabilities 1,111 970
----------- -----------
Total Liabilities 150,337 141,556
SHAREHOLDERS' EQUITY 14,835 13,583
----------- -----------
Total Liabilities
and Shareholders' Equity $ 165,172 $ 155,139
=========== ===========
Met yield on earning assets $ 1,785 4.51% $ 1,731 4.67%
========= ======= ======== ======
</TABLE>
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,
1998 and 1997, respectively. The effect of this adjustment is presented below
(in thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Obligations of states and
political subdivisions:
Investment securities $ 8,553 $ 168 7.81% $ 5,381 $ 107 7.86%
Loans 100,476 2,347 9.27% 88,575 2,078 9.31%
=========== ========= ======= =========== ======== =======
Total earning assets $ 157,089 $ 3,251 8.21% $ 147,164 $ 3,021 8.14%
=========== ========= ======= =========== ======== =======
Taxable equivalent net yield on
earning assets $ 1,888 4.77% $ 1,797 4.84%
========= ======= ======== =======
</TABLE>
<PAGE>
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 $6,851,695 or 15.1% from $45,443,954 at
December 31, 1997, to $52,295,649 at September 30, 1998. Taxable securities
comprised 82.1% of total securities at September 30, 1998, as compared to 88.4%
at December 31, 1997. 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, 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 September 30, 1998, 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 were improved,
the carrying value of securities available for sale was increased by $397,129
and $195,928 at September 30, 1998 and December 31, 1997, respectively. The
market value of securities classified as held to maturity was above book value
by $139,197 and $59,428 at September 30, 1998 and December 31, 1997,
respectively.
Table Four
Investment Portfolio
The following table presents the book values of investment securities at
September 30, 1998 and 1997 and at December 31, 1997:
(in thousands) (Unaudited):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ -- $ -- $ --
Obligations of states
and political subdivisions 8,850 4,778 4,720
----------- ----------- -----------
Total held to maturity $ 8,850 $ 4,778 $ 4,720
----------- ----------- -----------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 35,429 $ 32,027 $ 40,897
Obligations of states
and political subdivisions 519 516 514
Corporate debt securities 209 209 1,202
Mortgage-backed securities 6,517 7,287 4,698
Equity Securities 772 627 622
----------- ----------- -----------
Total available for sale 43,446 40,666 47,933
----------- ----------- -----------
Total $ 52,296 $ 45,444 $ 52,653
=========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
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, 1998 and December 31, 1997 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.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------------- -------------------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government Agencies
Within One Year $ -- --% $ 9,510 5.90% $ -- --% $ 7,794 6.11%
After One But
Within Five Years -- -- 17,530 6.01 -- -- 21,970 6.38
After Five But
Within Ten Years -- -- 8,389 6.34 -- -- 2,263 6.94
After Ten Years -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ --------- ------
-- -- 35,429 6.06 -- -- 32,027 6.35
States & Political Subdivisions
Within One Year 725 8.62 -- -- 436 6.31 -- --
After One But
Within Five Years 4,394 6.55 -- -- 3,238 7.16 -- --
After Five But
Within Ten Years 3,731 7.06 519 7.41 941 7.55 516 7.46
After Ten Years -- -- -- -- 163 7.72 -- --
--------- ------ --------- ------ --------- ------ --------- ------
8,850 6.93 519 7.41 4,778 7.18 516 7.46
Corporate Debt Securities
Within One Year -- -- 101 7.73 -- -- -- --
After One But
Within Five Years -- -- 108 7.92 -- -- 209 7.83
--------- ------ --------- ------ --------- ------ --------- ------
-- -- 209 7.83 -- -- 209 7.83
Mortgage-Backed Securities -- -- 6,517 6.48 -- -- 7,287 6.55
Equity Securities -- -- 772 4.99 -- -- 627 5.45
--------- ------ --------- ------ --------- ------ --------- ------
Total $ 8,850 6.93% $ 43,446 6.13% $ 4,778 7.18% $ 40,666 6.39%
========= ====== ========= ====== ========= ====== ========= ======
</TABLE>
<PAGE>
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, 1998 were $100,594,506 as compared to $95,373,653
as of December 31, 1997, an increase of 5.5%. The loan growth can be attributed
primarily to increases in installment loans, commercial loans and residential
real estate loans which increased approximately $2,594,000, $1,962,000, and
$511,000, respectively. Increases in third party paper with various automobile
dealers contributed to the increase in installment loans. The increase in
commercial loans were primarily the result of expansion of area businesses due
to the extension of a subsidiary bank's market area. 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-three percent
(33%) 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-five percent (25%) of the loan portfolio. Other loans include nonrated
industrial development obligations, direct financing leases and other loans
comprise four percent (4%) of the loan portfolio. The only change in the
composition of the loan portfolio from December 31, 1997 to September 30, 1998
was a 2% increase in installment loans, and a 2% decrease in real estate
residential loans.
The loan portfolio is not dominated by concentrations of credit within any
one industry; therefore, the impact of a weakening economy on any particular
industry should be minimal. Management believes that the loan portfolio does
not contain any excessive or abnormal elements of risk.
Table Six
Loan Portfolio
(Unaudited)
Loans outstanding are as follows (in thousands) :
September 30, December 31,
-------------------------- -----------
1998 1997 1997
Real Estate - Residential
Real estate-construction $ 105 $ 333 $ 334
Real estate-farmland 150 129 122
Real estate-residential 33,322 31,350 32,610
---------- ----------- -----------
$ 33,577 $ 31,812 $ 33,066
---------- ----------- -----------
COMMERCIAL
Real estate-secured by
nonfarm, nonresidential $ 26,777 $ 22,878 $ 23,925
Commercial & industrial 11,487 11,948 12,377
---------- ----------- -----------
$ 38,264 $ 34,826 $ 36,302
---------- ----------- -----------
INSTALLMENT
Installment and other
loans to individuals $ 25,081 $ 21,657 $ 22,487
---------- ----------- -----------
OTHERS
Nonrated industrial
development obligations $ 3,658 $ 3,172 $ 3,517
Direct Financing Leases -- 93 70
Other loans 117 21 40
---------- ----------- -----------
$ 3,775 $ 3,286 $ 3,627
---------- ----------- -----------
Total 100,697 91,581 95,482
Less unearned interest 103 104 108
---------- ----------- -----------
$ 100,594 $ 91,477 $ 95,374
========== =========== ===========
<PAGE>
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,
1998 and December 31, 1997 (in thousands) (Unaudited):
September 30, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Commercial $ 1,225 $ 6,183 $ 4,079
Real Estate - construction 105 -- --
----------- ----------- -----------
Total $ 1,330 $ 6,183 $ 4,079
=========== =========== ===========
December 31, 1997
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Commercial $ 1,088 $ 7,769 $ 3,520
Real Estate - construction 333 -- --
----------- ----------- -----------
Total $ 1,421 $ 7,769 $ 3,520
=========== =========== ===========
The following table presents an analysis of fixed and variable rate loans as of
September 30, 1998 and December 31, 1997 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
September 30, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Fixed Rates $ 1,075 $ 5,653 $ 1,122
Variable Rates 255 530 2,957
----------- ----------- -----------
Total $ 1,330 $ 6,183 $ 4,079
=========== =========== ===========
December 31, 1997
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
----------- ----------- -----------
Fixed Rates $ 1,122 $ 6,326 $ 1,237
Variable Rates 299 1,443 2,283
----------- ----------- -----------
Total $ 1,421 $ 7,769 $ 3,520
=========== =========== ===========
- ---------------------------------------------------------------------------
<PAGE>
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 $728,000 at September 30, 1998 and $839,000
at December 31, 1997, a decrease of 13.0%. Loans classified as non-
accrual were $372,000 or .4% of total loans as of September 30, 1998, as
compared to $540,000 or .6% of total loans at December 31, 1997. There were
no loans classified as renegotiated as of September 30, 1998 and 1997,
respectively. The loans past due 90 days or more increased $137,000 to
$356,000 at September 30, 1998 as compared to $219,000 at December 31, 1997.
Other real estate owned decreased $80,000 due to the sale of properties by a
subsidiary bank. 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,
------------------- --------
1998 1997 1997
-------- -------- --------
Past Due 90 Days or More:
Real Estate - residential $ 115 $ 532 $ 45
Commercial 117 83 70
Installment 124 56 104
-------- -------- --------
$ 356 $ 671 $ 219
-------- -------- --------
Non-accrual:
Real Estate - residential $ 16 $ 80 $ 139
Commercial 260 164 353
Installment 96 44 48
-------- -------- --------
$ 372 $ 288 $ 540
-------- -------- --------
Other Real Estate $ -- $ 85 $ 80
-------- -------- --------
Total non-performing assets $ 728 $ 1,044 $ 839
======== ======== ========
Total non-performing assets
to total loans and
other real estate 0.72% 1.14% 0.88%
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 $23,800 and
$14,500 for the periods ended September 30, 1998 and 1997, respectively.
As of September 30, 1998, 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.
- ------------------------------------------------------------------------------
<PAGE>
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 $76,500 during
the three months ended September 30, 1998, from $34,500 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. The allowance for possible loan losses represented 1.1% and
1.3% of loans outstanding as of September 30, 1998 and December 31, 1997,
respectively. Net loan charge-offs were $288,000 for the nine month period
ended September 30, 1998. The net charge-offs were primarily commercial and
installment 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,
--------- --------- ---------
1998 1997 1997
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,218 $ 1,160 $ 1,160
Loans Charged Off:
Real Estate - residential 65 18 18
Commercial 134 -- --
Installment 106 52 67
--------- --------- ---------
305 70 85
Recoveries:
Real Estate - residential 5 -- --
Commercial -- 3 3
Installment 12 8 9
--------- --------- ---------
17 11 12
Net Charge-offs 288 59 73
Additions Charged to Operations 179 96 131
--------- --------- ---------
Balance at end of period: $ 1,109 $ 1,197 $ 1,218
========= ========= =========
Average Loans Outstanding $ 98,491 $ 84,120 $ 86,609
========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period .29% .07% .08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.10% 1.31% 1.28%
The additions to the allowance for loan losses are based on management's
evaluation of characteristics of the loan portfolio, current and anticipated
economic conditions, past loan experiences, net loans charged-off, specific
problem loans and delinquencies, and other factors.
- ------------------------------------------------------------------------------
<PAGE>
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 1998 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, 1997 , and the nine
month period ended September 30, 1998 ( 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.
<TABLE>
<CAPTION>
September 30, December 31,
---------------- --------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
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
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -
residential $ 199 33.4% $ 202 34.6% $ 192 36.5% $ 215 39.9% $ 216 43.1% $ 216 43.1%
Commercial 490 38.0 622 38.0 619 39.1 618 36.5 420 34.7 382 35.9
Installment 369 25.0 343 23.6 298 21.6 265 20.0 260 19.3 248 17.6
Others 20 3.6 20 3.8 20 2.8 20 3.6 20 2.9 20 3.4
Unallocated 31 -- 31 -- 31 -- 31 -- 31 -- 30 -
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 1,109 100.0% $ 1,218 100.0% $ 1,160 100.0% $ 1,149 100.0% $ 947 100.0% $ 896 100.0%
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
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 $144,054,028 at September 30, 1998 as compared to
$137,044,813 at December 31, 1997, an increase of 5.1%. 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)
<TABLE>
<CAPTION>
September 30, 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)
<S> <C> <C> <C> <C> <C>
Time Certificates
of Deposit $ 1,813 $ 2,232 $ 1,165 $ 4,725 $ 9,935
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Maturities of Time Deposits in Excess of $100,000
--------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
------- ----------- ------------ ------- -------
(Expressed in Thousands)
<S> <C> <C> <C> <C> <C>
Time Certificates
of Deposit $ 4,297 $ 1,128 $ 1,668 $ 4,854 $11,947
</TABLE>
Repurchase Agreements
- ----------------------
Repurchase agreements represent short-term borrowings, usually
overnight to 30 days. Repurchase agreements were $6,297,329 at September 30,
1998, an increase of $2,222,333, as compared to December 31, 1997. 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 7.0% during the first nine months
of 1998 entirely from current earnings after quarterly dividends, and a increase
of .9% resulting from the effect of the change in the net unrealized gain (loss)
on securities available for sale. Stockholders' equity amounted to 9.2% of
total assets at September 30, 1998 as compared to 9.0% at December 31, 1997.
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.
- ------------------------------------------------------------------------------
<PAGE>
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, 1998, September 30, 1997, and December 31, 1997:
September 30, Dec. 31
--------------- ------
Ratio Minimum 1998 1997 1997
- ---------------------- ------- ------ ------ ------
Leverage Ratio 3% 8.9 8.6 8.7
Risk Based Capital
Tier 1 (core) 4% 13.9 14.0 14.2
Tier 2 (total) 8% 14.9 15.2 15.4
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
$43,445,757 classified as available for sale at September 30, 1998. 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, 1998, Progressive Bank, N.A. and Progressive Bank, N.A.-
Buckhannon, had an available line of approximately $2,570,000 and $694,000,
respectively, without purchasing any additional capital stock from the FHLB.
As of September 30, 1998 there were no borrowings outstanding pursuant to
these agreements.
At September 30, 1998 the Holding Company had outstanding loan commitments
and unused lines of credit totaling $8,319,000. As of September 30, 1998,
management placed a high probability for required funding within one year of
approximately $4,418,000. Approximately $2,244,000 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 first two
phases of the Plan, which include Awareness and Assessment, have been completed
in accordance with the timetables established in the Plan. During the third
quarter of 1998, testing of our mission critical systems which interface with
the mainframe computer system were completed and verification is in process.
The mainframe software was written 2000 compliant in 1992, therefore renovation
was not necessary. Also, the development of a customer awareness strategy,
and an assessment of customers' for Year 2000 risk were completed in accordance
with the timetables established in the plan. The expected timetables for
completion of the remaining phases are as follows: Renovation phase, by the
end of the fourth quarter of 1998; Validation phase, third quarter of 1998
through first quarter of 1999; Implementation phase, first quarter of 1999.
The Year 2000 committee has developed a contingency plan for identified mission
critical applications which are not currently certified Year 2000 compliant to
mitigate risk. 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.
<PAGE>
22
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, 1998, 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,
1998.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 24 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
<PAGE>
23
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, 1998
<PAGE>
24
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, 1998 between
First West Virginia Bancorp, Inc. and Ronald L. Solomon.
Incorporated herein by reference.
10.2 Employment Contract dated January 1, 1998 between
First West Virginia Bancorp, Inc. and Charles K. Graham.
Incorporated herein by reference.
10.3 Lease dated July 20, 1993 between Progressive Bank, N.A., formerly
known as "First West Virginia Bank, N.A.", and Angela I. Stauver.
Incorporated herein by reference.
10.4 Lease dated March 26, 1992 between First West Virginia Bancorp, Inc.
and the estate of Thomas L. Stockert, Jr., and the Tom Stockert
Corporation. Incorporated herein by reference.
10.6 Banking Services License Agreement dated October 26, 1994 between
Progressive Bank, N.A., formerly known as "First West Virginia Bank,
N.A.", and The Kroger Co. Incorporated herein by reference.
10.7 Lease dated November 14, 1995 between Progressive Bank, N.A.
Buckhannon and First West Virginia Bancorp, Inc and O. V. Smith
& Sons of Big Chimney, Inc. Incorporated herein by reference.
11.1 Statement regarding computation of per share earnings.
Filed herewith and incorporated herein by reference.
13.3 Summarized Quarterly Financial Information.
Filed herewith and incorporated herein by reference.
15 Letter re unaudited interim financial information. Incorporated
herein by reference. See Part 1, Notes to Consolidated Financial
Statements
27 Financial Data Schedule. Filed herewith and incorporated herein by
reference.
<PAGE>
EXHIBIT 11.1
Statement Regarding Computation of Per Share Earnings
<PAGE>
26
Computation of Earnings Per Share
- ---------------------------------
The following formula was used to calculate the earnings per share,
Consolidated Statements of Income for the three and nine months ended
September 30, 1998 and 1997, included in this report as Exhibit 13.3
Earnings Per Share
Net Income /
Weighted average shares of common stock outstanding for the period
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted Average
Shares Outstanding 1,257,252 1,257,252 1,257,252 1,257,252
Net Income $ 515,715 $ 502,677 $1,536,647 $1,453,769
Per Share Amount $ .41 $ .40 $ 1.22 $ 1.16
</TABLE>
No common stock equivalents exist.
<PAGE>
EXHIBIT 13.3
Summarized Quarterly Financial Information
- -----------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- -----------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
<TABLE>
<CAPTION>
First Second Third
1998 Quarter Quarter Quarter
------------- ------------- -------------
<S> <C> <C> <C>
Total interest income $ 3,017,292 $ 3,062,636 $ 3,148,133
Total interest expense 1,276,939 1,325,792 1,363,263
Net interest income 1,740,353 1,736,844 1,784,870
Provision for loan losses 46,500 56,500 76,500
Investment Securities gain (loss) (1,608) -- 2,786
Total other income 191,504 183,293 215,373
Total other expenses 1,109,594 1,125,921 1,172,069
Income before income taxes 774,155 737,716 754,460
Net income 519,740 501,192 515,715
Net income per share (1) .41 .40 .41
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $ 2,372,377 $ 2,473,455 $ 2,556,220 $ 2,665,006
Total interest expense 916,012 958,753 993,702 1,056,942
Net interest income 1,456,365 1,514,702 1,562,518 1,608,064
Provision for loan losses 14,400 14,400 16,800 25,000
Investment Securities Gain (Loss) (1,050) 339 -- --
Total other income 136,416 143,670 148,902 139,487
Total other expenses 1,016,692 1,040,824 1,038,297 1,085,853
Income before income taxes 560,639 603,487 656,323 636,698
Net income 374,361 405,277 435,046 429,310
Net income per share (1) .30 .32 .35 .34
</TABLE>
(1) Adjusted for a 4 percent common stock dividend to stockholders of
record as of October 1, 1998, payable October 26, 1998, a 3 for 2 stock split
in the effect of a 50% stock dividend to stockholders of record as of
October 1, 1997, and a 4 percent common stock dividend to stockholders of
record as of December 2, 1996.
- -------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 4,087
<INT-BEARING-DEPOSITS> 114
<FED-FUNDS-SOLD> 5,910
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,446
<INVESTMENTS-CARRYING> 8,850
<INVESTMENTS-MARKET> 8,989
<LOANS> 100,594
<ALLOWANCE> 1,109
<TOTAL-ASSETS> 166,639
<DEPOSITS> 144,054
<SHORT-TERM> 6,298
<LIABILITIES-OTHER> 1,039
<LONG-TERM> 0
0
0
<COMMON> 6,286
<OTHER-SE> 8,962
<TOTAL-LIABILITIES-AND-EQUITY> 166,639
<INTEREST-LOAN> 6,572
<INTEREST-INVEST> 2,136
<INTEREST-OTHER> 367
<INTEREST-TOTAL> 9,228
<INTEREST-DEPOSIT> 3,810
<INTEREST-EXPENSE> 3,966
<INTEREST-INCOME-NET> 5,262
<LOAN-LOSSES> 179
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 3,408
<INCOME-PRETAX> 2,266
<INCOME-PRE-EXTRAORDINARY> 2,266
<EXTRAORDINARY> 0
<CHANGES> 1,537
<NET-INCOME> 0
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 4.79
<LOANS-NON> 372
<LOANS-PAST> 356
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,218
<CHARGE-OFFS> 305
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 1,109
<ALLOWANCE-DOMESTIC> 1,109
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 31
</TABLE>
