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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, 2002
[ ] 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 practible date.
The number of shares outstanding of the issuer's common stock as of November 8,
2002:
Common Stock, $5.00 Par Value, shares outstanding 1,538,443 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,
2002 2001 2001
-------------- -------------- -------------
ASSETS
Cash and due from banks $ 7,127,914 $ 6,419,402 $ 5,031,050
Due from banks - interest bearing 5,131,806 9,075,314 9,531,325
-------------- -------------- -------------
Total cash and cash equivalents 12,259,720 15,494,716 14,562,375
Federal funds sold 4,853,000 7,632,000 7,063,000
Investment securities
Available for sale (at fair value) 98,432,592 73,348,310 62,737,106
Held to maturity - fair value of
$8,546,753 at September 30, 2002
$9,011,951 at December 31, 2001;
and $9,810,862 at September 30, 2001 8,225,741 8,853,851 9,549,351
Loans, net of unearned income 134,179,531 120,943,839 120,345,876
Less allowance for possible loan losses (1,946,885) (1,645,972) (1,562,003)
-------------- -------------- -------------
Net loans 132,232,646 119,297,867 118,783,873
Premises and equipment, net 4,307,031 4,005,353 3,947,362
Accrued income receivable 1,424,900 1,252,143 1,367,763
Intangible assets 2,007,418 547,300 569,487
Other assets 1,533,063 1,598,585 1,572,632
-------------- -------------- -------------
Total assets $ 265,276,111 $ 232,030,125 $ 220,152,949
============== ============== =============
LIABILITIES
Noninterest bearing deposits:
Demand $ 23,445,635 $ 20,875,835 $ 18,505,022
Interest bearing deposits:
Demand 33,609,116 31,452,855 28,371,907
Savings 74,438,720 69,545,369 65,483,509
Time 99,776,419 81,897,895 78,602,772
------------- -------------- --------------
Total deposits 231,269,890 203,771,954 190,963,210
-------------- -------------- --------------
Federal funds purchased and
repurchase agreements 10,644,067 6,537,648 7,623,043
Accrued interest on deposits 545,335 519,399 580,201
Other liabilities 965,395 952,156 879,039
-------------- -------------- --------------
Total liabilities 243,424,687 211,781,157 200,045,493
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at
$5 par value 1,538,443 shares issued at
September 30, 2002 and December 31, 2001,and
September 30, 2001 7,692,215 7,692,215 7,692,215
Surplus 4,982,606 4,982,606 4,982,606
Retained Earnings 8,055,700 6,954,229 6,627,602
Accumulated other comprehensive income 1,120,903 619,918 805,033
-------------- -------------- --------------
Total stockholders' equity 21,851,424 20,248,968 20,107,456
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 265,276,111 $ 232,030,125 $ 220,152,949
============== ============== ==============
The accompanying notes are an integral part of the financial statements
4
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans:
Taxable $2,367,190 $2,431,494 $7,034,161 $7,312,112
Tax-exempt 146,578 102,379 392,930 261,911
Investment securities:
Taxable 894,422 846,400 2,618,373 2,727,784
Tax-exempt 154,687 169,046 469,100 458,196
Dividends 4,276 8,777 17,461 26,727
Other interest income 36,578 68,080 114,625 254,488
Interest on federal funds sold 29,993 46,502 89,118 203,284
--------- ---------- --------- ----------
Total interest income 3,633,724 3,672,678 10,735,768 11,244,502
INTEREST EXPENSE
Deposits 1,262,727 1,549,602 3,780,446 4,801,538
Other borrowings 35,888 42,709 92,131 258,520
--------- ---------- --------- ----------
Total interest expense 1,298,615 1,592,311 3,872,577 5,060,058
--------- ---------- --------- ----------
Net interest income 2,335,109 2,080,367 6,863,191 6,184,444
PROVISION FOR POSSIBLE LOAN LOSSES 150,000 141,000 450,000 423,000
--------- ---------- --------- ----------
Net interest income after provision
for possible loan losses 2,185,109 1,939,367 6,413,191 5,761,444
NONINTEREST INCOME
Service charges and other fees 181,521 156,472 489,772 438,599
Securities gains (losses) 3 -- 12,506 7,891
Other operating income 100,890 101,161 262,827 267,982
--------- ---------- --------- ----------
Total noninterest income 282,414 257,633 765,105 714,472
NONINTEREST EXPENSES
Salary and employee benefits 788,715 687,666 2,278,823 1,994,914
Net occupancy and equipment expenses 250,135 205,325 732,697 628,594
Other operating expenses 547,036 409,097 1,555,016 1,271,722
--------- ---------- --------- ----------
Total noninterest expense 1,585,886 1,302,088 4,566,536 3,895,230
--------- ---------- --------- ----------
Income before income taxes 881,637 894,912 2,611,760 2,580,686
--------- ---------- --------- ----------
INCOME TAXES 242,881 256,054 725,683 756,445
--------- ---------- --------- ----------
Net income $ 638,756 $ 638,858 $1,886,077 $1,824,241
========= ========== ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,538,443 1,538,443 1,538,443 1,538,443
========= ========== ========= ==========
EARNINGS PER COMMON SHARE $ 0.42 $ 0.42 $ 1.23 $ 1.19
========= ========== ========= ==========
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 (UNAUDITED)
Accumulated
Common Stock Other
------------------------ Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
--------- ----------- ----------- ----------- ---------- ----------- ------------
Balance, December 31, 2001 1,538,443 $ 7,692,215 $ 4,982,606 $ 6,954,229 $ 619,918 $ $ 20,248,968
Comprehensive income
Net income for the nine months
ended September 30, 2002 -- -- -- 1,886,077 -- 1,886,077 1,886,077
Other comprehensive income,
net of tax
Unrealized gains on securities,
net of reclassification adjustment
(see disclosure) -- -- -- -- 500,985 500,985 500,985
-----------
Comprehensive income $ 2,387,062
===========
Cash dividend
($.51 per share) -- -- -- (784,606) -- (784,606)
------------ ------------ ------------- ------------ ----------- -------------
Balance, September 30, 2002 (Unaudited) 1,538,443 $ 7,692,215 $ 4,982,606 $ 8,055,700 $1,120,903 $ 21,851,424
============ ============ ============= ============ ============ =============
Accumulated
Common Stock Other
------------------------ Retained Comprehensive Comprehensive
Shares Amount Surplus Earnings Income Income Total
--------- ----------- ----------- ----------- ---------- ----------- ------------
Balance, December 31, 2000 1,538,443 $ 7,692,215 $ 4,982,606 $ 5,587,967 $ (37,688) $ $ 18,225,100
Comprehensive income
Net income for the nine months
ended September 30, 2001 -- -- -- 1,824,241 -- 1,824,241 1,824,241
Other comprehensive income,
net of tax
Unrealized gains on securities,
net of reclassification adjustment
(see disclosure) -- -- -- -- 842,721 842,721 842,721
-----------
Comprehensive income $ 2,666,962
===========
Cash dividend
($.51 per share) -- -- -- (784,606) -- (784,606)
------------ ------------ ------------- ------------ ------------ ------------
Balance, September 30, 2001 1,538,443 $ 7,692,215 $ 4,982,606 $ 6,627,602 $ 805,033 $ 20,107,456
============ ============ ============= ============ ============ =============
For the nine months ended
September 30,
2002 2001
---------- ----------
Disclosure of reclassification amount, net of tax:
Unrealized holding gains
arising during the period $ 508,824 $ 847,667
Less: reclassification adjustment for
gains included in net income 7,839 4,946
----------- -----------
Unrealized gains on securities,
net of reclassification adjustment $ 500,985 $ 842,721
=========== ===========
The accompanying notes are an integral part of the financial statements
6
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
2002 2001
----------------- ---------------
OPERATING ACTIVITIES
Net Income $ 1,886,077 $ 1,824,241
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 450,000 423,000
Depreciation and amortization 306,531 283,237
Amortization (accretion) of investment securities, net 136,451 (89,010)
Investment security losses (gains) (12,506) (7,891)
Loss(gain)on disposal of premises and equipment -- (3,110)
Decrease (increase) in interest receivable (172,757) 175,361
Increase (decrease) in interest payable 25,936 (18,034)
Other, net (216,692) (300,361)
----------------- ---------------
Net cash provided by operating activities 2,403,040 2,287,433
----------------- ---------------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 2,779,000 (2,667,000)
Net (increase) decrease in loans, net of charge offs (13,424,368) (6,483,709)
Loans acquired in purchase of branch office 5,078,284 --
Proceeds from sales of securities available for sale 3,763,937 1,862,382
Proceeds from maturities of securities available for sale 136,591,000 69,554,000
Proceeds from maturities of securities held to maturity 1,115,000 1,330,000
Principal collected on mortgage-backed securities 12,309,065 7,102,543
Purchases of securities available for sale (177,069,818) (78,451,822)
Purchases of securities held to maturity (490,029) --
Recoveries on loans previously charged-off 39,589 27,795
Cash acquired in purchase of branch office 9,063,065 8,990,870
Purchases of premises and equipment (559,244) (1,424,089)
Proceeds from sales of premises and equipment -- 3,110
----------------- ---------------
Net cash used by investing activities (20,804,518) (155,920)
----------------- ---------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 27,497,936 17,294,632
Deposits acquired in purchase of branch office (15,653,267) (9,612,129)
Dividends paid (784,606) (784,606)
Increase (decrease) in short term borrowings 4,106,419 6,903,285
----------------- ---------------
Net cash provided by financing activities $ 15,166,482 $ (5,388)
----------------- ---------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,234,996) 2,126,125
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 15,494,716 12,436,250
----------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 12,259,720 $ 14,562,375
================ ==============
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, 2002 AND 2001
Note 1 - BASIS OF PRESENTATION
The consolidated financial information of First West Virginia Bancorp, Inc. (the
"Corporation") and its subsidiaries included herein is unaudited. However, in
the opinion of management, such information reflects all adjustments ( all of
which are normal and recurring in nature) necessary to present fairly the
financial position and the results of operations for the interim period. The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. The notes to the financial statements contained in the annual
report for December 31, 2001, should be read in conjunction with these financial
statements.
The provision for income taxes is at a rate which management believes will
approximate the effective rate for the year.
Certain prior year amounts have been reclassified to conform to the 2002
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, has two wholly-owned subsidiaries:
Progressive Bank, N.A., which operates in Wheeling, Wellsburg, Moundsville, and
New Martinsville, 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 and nine months
ended September 30, 2002 and 2001. 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 2001 financial
statements, the notes thereto and the related Management's Discussion and
Analysis.
OVERVIEW
The Holding Company reported net income of $638,756 for the three months ended
September 30, 2002 as compared to $638,858 for the same period during 2001.
Earnings per share were $.42 in the third quarter of 2002 and the third quarter
of 2001. During the three month period ended September 30, 2002, net interest
income increased primarily from the decrease in interest paid on savings
deposits combined with the increase in the average volume of savings and time
deposits, offset in part by the increase in the average volume of investment
securities and loans.
Net income for the nine months ended September 30, 2002 was $1,886,077 compared
to $1,824,241 for the same period during 2001. The increase in earnings for the
nine months ended September 30, 2002 as compared to the same period in 2001 was
primarily due 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 $1.23 for the first nine months of 2002 as compared to $1.19
earned during the same period during 2001.
For the nine month period ended September 30, 2002, 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
average volume of savings and time deposits combined with the decrease in the
interest rates paid on savings and time deposits.
Return on average assets (ROA) measures the effectiveness of asset utilization
to produce net income. ROA was .97% for the three month period ended September
30, 2002 and 1.16% for the three month period ended September 30, 2001. For the
nine months ended September 30, 2002 compared to September 30, 2001, ROA was
1.02% and 1.13%, respectively. Return on average equity (ROE) measures the
return on the stockholders' investment. The ROE was 12.35% for the three months
ended September 30, 2002 and 13.31% at September 30, 2001. For the nine months
ended September 30, 2002 compared to September 30, 2001, ROE was 12.53% and
13.02%, respectively.
The Corporation's subsidiary, Progressive Bank, N.A.,opened a full-service
office at 1090 East Bethlehem Boulevard in Wheeling, West Virginia during the
first quarter of 2002. Also, Progressive Bank, N.A. completed its transaction
with Wheeling National Bank to purchase its New Martinsville branch office. In
2001 Progressive Bank, N.A. entered into a Purchase and Assumption Agreement
with Wheeling National Bank to purchase the building, loans and deposits of
Wheeling National's New Martinsville, West Virginia branch office located at 631
Third Street. Upon consummation of the transaction the facility was closed and
consolidated with Progressive Bank's existing branch office located at 425 Third
Street, New Martinsville, West Virginia. Total deposits acquired in the New
Martinsville transaction were approximately $15.7 million and total loans were
approximately $5.1 million.
The Holding Company as of September 30, 2002 had total assets of $265,276,111 an
increase of 14.3% over the $232,030,125 reported for the year ended December 31,
2001. Loans net of the allowance for possible loan losses grew by $12,934,779 or
10.8% to $132,232,646, as compared to $119,297,867 reported at December 31,
2001. Total deposits increased in 2002 by $27,497,936, from $203,771,954 at
December 31, 2001 to $231,269,890 at September 30, 2002. The allowance for loan
losses amounted to 1.5% of total loans at September 30, 2002, compared to 1.4%
of total loans at December 31, 2001.
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, in thousands, except per share data)
First West Virginia Bancorp, Inc.
Three months ended Nine months ended Years ended
September 30, September 30, December 31,
---------------------- --------------------- ----------------------------------
2002 2001 2002 2001 2001 2000 1999
--------- -------- --------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 3,634 $ 3,672 $ 10,736 $11,244 $ 14,772 $ 14,869 $13,207
Total interest expense 1,299 1,592 3,873 5,060 6,422 7,155 5,602
Net interest income 2,335 2,080 6,863 6,184 8,350 7,714 7,605
Provision for loan losses 150 141 450 423 573 436 348
Total other income 283 258 765 715 942 880 1,073
Total other expenses 1,586 1,302 4,566 3,895 5,324 4,816 4,740
Income before income taxes 882 895 2,612 2,581 3,395 3,341 3,590
Net income 639 639 1,886 1,824 2,412 2,326 2,450
PER SHARE DATA (1)
Net income $ 0.42 $ 0.42 $ 1.23 $ 1.19 $ 1.57 $ 1.51 $ 1.59
Cash dividends declared 0.17 0.17 0.51 0.51 0.68 0.64 0.54
Book value per share 14.20 13.07 14.20 13.07 13.16 11.85 10.44
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $133,326 $119,768 $129,451 $117,399 $ 118,224 $ 112,579 $105,775
Investment securities 97,867 73,285 90,031 73,440 73,639 69,548 59,716
Deposits - interest bearing 206,180 171,883 196,902 166,840 168,820 155,172 141,768
Stockholders' equity 20,523 19,046 20,117 18,727 18,902 17,448 16,087
Total assets 260,429 217,684 248,430 215,006 217,006 203,529 183,436
SELECTED RATIOS
Return on average assets .97% 1.16% 1.02% 1.13% 1.11% 1.14% 1.34%
Return on average equity 12.35% 13.31% 12.53% 13.02% 12.76% 13.33% 15.23%
Average equity to average assets 7.88% 8.75% 8.10% 8.71% 8.71% 8.57% 8.77%
Dividend payout ratio (1) 40.48% 40.48% 41.46% 42.86% 43.31% 42.38% 33.96%
Loan to Deposit ratio 58.02% 63.02% 58.02% 63.02% 59.35% 65.67% 68.39%
BALANCE SHEET September 30, December 31,
--------------------- ---------------------------------
2002 2001 2001 2000 1999
---------- ---------- ---------- --------- ----------
Investments $ 106,658 $ 72,286 $ 82,202 $ 72,242 $ 59,394
Loans 134,180 120,346 120,944 114,053 110,489
Other assets 24,438 27,521 28,884 21,598 19,290
---------- --------- ---------- --------- ----------
Total Assets $ 265,276 $ 220,153 $ 232,030 $ 207,893 $ 189,173
========= ========= ========= ========= =========
Deposits $ 231,270 $ 190,963 $ 203,772 $ 173,669 $ 161,558
Federal funds purchased and
repurchase agreements 10,644 7,623 6,538 14,526 10,274
Other liabilities 1,511 1,460 1,471 1,473 1,285
Stockholders' equity 21,851 20,107 20,249 18,225 16,056
---------- --------- ---------- --------- ----------
Total Liabilities and
Stockholders' Equity $ 265,276 $ 220,153 $ 232,030 $ 207,893 $ 189,173
========= ========= ========= ========= =========
(1) Adjusted for the 2 percent common stock dividend to stockholders of record
as of December 1, 2000, a 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.
- ------------------------------------------------------------------------------
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
Changes in the volume and mix of earning assets and interest bearing liabilities
combined with changes in market rates of interest greatly effect net interest
income. Tables Two and Three present the average balance sheet and interest rate
analysis for the three and nine months ended September 30, 2002 and 2001.
Net interest income was $2,335,109 for the three months ended September 30,
2002, an increase of $254,742 or 12.2%, from the same period in 2001. Net
interest income increased during the third quarter of 2002 compared to the same
period in 2001 primarily due to the decline in interest rates paid on deposit
liabilities.
During the three months ended September 30, 2002, interest expense decreased
$293,696 or 18.4% as compared to the same period in 2001. Interest expense
decreased as a result of a decrease in the average rates paid on interest
bearing liabilities. The average yield paid on interest bearing liabilities
decreased 1.19%, from 3.59% at December 31, 2001 to 2.40% during the three
months ended September 30, 2002. The decrease in the average yield on interest
bearing liabilities during the third quarter of 2002 was primarily due to the
decrease in the interest rates paid on savings deposits and time deposits.
Interest income on investment securities increased $33,663 or 3.3% during the
three months ended September 30, 2002 over 2001. The average yield on investment
securities declined, from 5.62% at December 31, 2001 to 4.25% during the three
month period ended September 30, 2002.
Interest and fees on loans decreased $20,105 or .8% for the three month period
ended September 30, 2002 as compared the same period in 2001. The decreased
interest income on loans and lease financing resulted primarily from a decrease
in the average rates earned. The average yield on loans decreased from 8.50% at
December 31, 2001 to 7.48% during the three months ended September 30, 2002.
For the nine months ended September 30, 2002, net interest income was
$6,863,191, an increase of $678,747 or 11.0%, from the same period in 2001. The
increase in net interest income was primarily due to the decline in interest
rates paid on deposit liabilities, offset in part by a decrease in the interest
earned on loans and investment securities. Interest and fees on loans decreased
$146,932 or 1.9% for the nine month period ended September 30, 2002 as compared
to the same period in 2001. Interest income on investment securities decreased
$98,507 or 3.1% during the nine months ended September 30, 2002 over 2001. The
average yield on investment securities decreased 1.03%, from 5.62% at December
31, 2001 to 4.59% at September 30, 2002. During the nine months ended September
30, 2002, interest expense decreased $1,187,481 or 23.5% as compared to the same
period in 2001. The average yield paid on interest bearing liabilities decreased
1.06%, from 3.59% at December 31, 2001 to 2.53% at September 30, 2002.
Noninterest Income
Noninterest income was $282,414 for the three months ended September 30, 2002,
an increase of $24,781, or 9.6% as compared to the same period of the prior year
and was primarily due to an increase in service charges. Service charges
increased $25,049 during the three months ended September 30, 2002, up 16.0%,
from the same period in 2001.
For the nine months ended September 30, 2002, noninterest income was $765,105,
an increase of $50,633, or 7.1% as compared to the same period of the prior year
and resulted primarily from increased service charges. Service charges and other
fees increased $51,173 or 11.7% over the same period in 2001.
Sales of investment securities for the nine month periods ended September 30,
2002 were primarily the result of sales by the Holding Company and by the
subsidiary banks. The Holding Company accounted for securities gains of $1,347
and securities losses of $1,107 during the period ended September 30, 2002 and
securities gains of $21,018 and securities losses of $11,859 during the period
ended September 30, 2001 and those sales were attributable to sales of
marketable equity securities. The subsidiary banks accounted for securities
gains of $28,341 and securities losses of $16,075 during the period ended
September 30, 2002 and securities gains of $7,865 and securities losses of
$9,133 during the period ended September 30, 2001 and those sales were
attributable to sales of securities available for sale.
11
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Non-Interest Expense
Noninterest expense increased $283,798 or 21.8% for the three months ended
September 30, 2002 as compared to the same period of the prior year. During the
quarter ended September 30, 2002, salary and employee benefits increased
$101,049 or 14.7%. The increase was primarily attributable to the hiring of
personnel for the New Martinsville and Bethlehem, West Virginia offices combined
with the normal annual merit adjustments. The major components of other
operating expenses include: office supplies, directors fees, service expense,
postage and transportation, other taxes, advertising, and regulatory assessment
and deposit insurance. Other operating expenses increased $137,939, or 33.7%,
for the three months ended September 30, 2002 as compared to the same period in
the prior year. Increased stationery and supplies expense, service expense,
postage and transportation expense, deposit premium amortization, advertising
expense, regulatory assessment and deposit insurance, other taxes and other
operating expenses, offset in part by decreased directors' fees primarily
contributed to the increase in other operating expenses during the three months
ended September 30, 2002.
For the nine months ended September 30, 2002, noninterest expense increased
$671,306 or 17.2% as compared to the same period of the prior year. Salary and
employee benefits increased $283,909 or 14.2%. The increase was primarily
attributable to the hiring of personnel for the New Martinsville and Bethlehem,
West Virginia offices combined with the normal annual merit adjustments. Other
operating expenses increased $283,294 or 22.3%, for the nine month period ended
September 30, 2002 as compared to the same period in the prior year. Increased
stationery and supplies expense, service expense, postage and transportation
expense, deposit premium amortization, advertising expense, regulatory
assessment and deposit insurance, other taxes and other operating expenses,
offset in part by decreased directors' fees primarily contributed to the
increase in other operating expenses during the nine months ended September 30,
2002.
Income Taxes
Income tax expense for the three months ended September 30, 2002 was $242,881, a
decrease of 5.1% over the same period in 2001. The increase in tax exempt income
on loans and investment securities primarily resulted in the decrease of income
tax expense for the three months ended September 30, 2002 compared to 2001.
Components of income tax expense for the three months ended September 30, 2002
were $196,212 for federal taxes and $46,669 for West Virginia corporate net
income taxes. For the nine months ended September 30, 2002, income tax expense
decreased 4.1% compared to the same period in 2001. The increase in tax exempt
income on loans and investment securities primarily resulted in the decrease of
income tax expense for the nine month period ended September 30, 2002 compared
to 2001.
For federal income tax purposes, tax-exempt income is based on qualified state,
county, and municipal bonds and loans. Tax-exempt income was $301,265 and
$271,425 for the three month periods ended September 30, 2002 and 2001,
respectively. For the nine months ended September 30, 2002 and 2001, tax exempt
income was $862,030 and $720,107, respectively.
Federal income tax rates and West Virginia corporate net income tax rates remain
consistent at 34% and 9%, respectively, for the three and nine months ended
September 30, 2002 and 2001 and for the year ended December 31, 2001.
12
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Two
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and
Interest Differential
The following table presents an average balance sheet, interest earned on
interest bearing assets, interest paid on interest bearing liabilities, average
interest rates and interest differentials for the nine months ended September
30, 2002 and September 30, 2001 and the year ended December 31, 2001. Average
balance sheet information as of September 30, 2002 and September 30, 2001 and
the year ended December 31, 2001 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, 2002 and 2001.
For the nine For the nine
months ended months ended
September 30, 2002 December 31, 2001 September 30, 2001
----------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- -------- ------- ------- -------- -------- -------- -------- ------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 31,406 $ 945 4.02% $ 29,143 $ 1,624 5.57% $ 30,559 $1,335 5.84%
Mortgage-backed securities 34,929 1,315 5.03% 22,952 1,454 6.33% 21,989 1,075 6.54%
Obligations of states and
political subdivisions 16,154 518 4.29% 15,578 704 4.52% 15,238 522 4.58%
Other securities 7,542 310 5.50% 5,966 353 5.92% 5,654 254 6.01%
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total Investment securities: 90,031 3,088 4.59% 73,639 4,135 5.62% 73,440 3,186 5.80%
Interest bearing deposits 8,888 106 1.59% 7,869 295 3.75% 7,331 246 4.49%
Federal funds sold 7,351 89 1.62% 6,594 241 3.65% 6,254 203 4.34%
Loans, net of unearned income 129,451 7,427 7.67% 118,224 10,054 8.50% 117,399 7,574 8.63%
Other earning assets 712 26 4.88% 707 47 6.65% 706 35 6.63%
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total earning assets 236,433 10,736 6.07% 207,033 14,772 7.14% 205,130 11,244 7.33%
Cash and due from banks 5,456 4,811 4,758
Bank premises and equipment 4,234 3,786 3,719
Other assets 4,127 2,893 2,879
Allowance for possible loan losses (1,820) (1,517) (1,480)
-------- -------- --------
Total Assets $248,430 $ 217,006 $215,006
======== ======== ========
LIABILITIES
Certificates of deposit $ 94,163 $ 2,944 4.18% $ 77,214 $ 4,273 5.53% $ 76,677 $ 3,247 5.66%
Savings deposits 70,539 672 1.27% 64,360 1,579 2.45% 63,791 1,338 2.80%
Interest bearing demand deposits 32,200 165 0.69% 27,246 280 1.03% 26,372 217 1.10%
Federal funds purchased and
Repurchase agreements 7,903 92 1.56% 10,034 290 2.89% 10,737 258 3.21%
-------- ------- ----- ------- -------- ------- ------- -------- ------
Total interest bearing liabilities 204,805 3,873 2.53% 178,854 6,422 3.59% 177,577 5,060 3.81%
Demand deposits 21,953 17,844 17,375
Other liabilities 1,555 1,406 1,327
-------- ------- --------
Total Liabilities 228,313 198,104 196,279
STOCKHOLDERS' EQUITY 20,117 18,902 18,727
-------- ------- --------
Total Liabilities
and Stockholders' Equity $248,430 $ 217,006 $215,006
======== ========= ========
Net yield on earning assets $6,863 3.88% $ 8,350 4.03% $ 6,184 4.03%
======= ====== ======= ====== ======= =====
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,
2002 and 2001, and the year ended December 31, 2001, respectively. The effect of
this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 16,154 $ 831 6.88% $ 15,578 $ 1,119 7.18% $ 15,238 $ 827 7.26%
Loans 129,451 7,689 7.94% 118,224 10,301 8.71% 117,399 7,749 8.82%
========= ======= ===== ========= ======= ====== ======= ======= =====
Total earning assets $ 236,433 $11,311 6.40% $ 207,033 $15,434 7.45% $205,130 $11,724 7.64%
========= ======= ===== ========= ======= ====== ======= ======= =====
Taxable equivalent net yield on
earning assets $ 7,438 4.21% $ 9,012 4.35% $ 6,664 4.34%
======= ====== ======= ====== ======= =====
13
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 (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 three months ended September
30, 2002 and September 30, 2001. Average balance sheet information as of
September 30, 2002 and September 30, 2001 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, 2002 and 2001.
For the Three For the Three
Months ended Months ended
September 30, 2002 September 30, 2001
---------------------------------- -------------------------------
Average Average Average Average
Volume Interest Rate Volume Interest Rate
---------- -------- ------- ----------- ------- -------
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 33,241 $ 317 3.78% $ 24,082 $ 321 5.29%
Mortgage backed securities 41,463 468 4.48% 25,607 408 6.32%
Obligations of states and
political subdivisions 16,307 171 4.16% 17,006 189 4.41%
Other securities 6,856 93 5.38% 6,590 97 5.84%
---------- -------- ------- ----------- ------- -------
Total Investment Securities 97,867 1,049 4.25% 73,285 1,015 5.49%
Interest bearing deposits 8,537 34 1.58% 7,797 65 3.31%
Federal funds sold 7,191 30 1.66% 5,841 46 3.12%
Loans, net of unearned income 133,326 2,514 7.48% 119,768 2,534 8.39%
Other earning assets 717 7 3.87% 706 12 6.74%
---------- -------- ------- ----------- ------- -------
Total earning assets 247,638 3,634 5.82% 207,397 3,672 7.02%
Cash and due from banks 5,793 4,928
Bank premises and equipment 4,293 3,884
Other earning assets 4,649 3,064
Allowance for possible loan losses (1,944) (1,589)
---------- -----------
Total Assets $ 260,429 $ 217,684
========= ==========
LIABILITIES
Certificates of deposit $ 100,035 $ 977 3.87% $ 78,502 $ 1,080 5.46%
Savings deposits 71,926 223 1.23% 65,030 394 2.40%
Interest bearing demand deposits 34,219 63 .73% 28,351 75 1.05%
Federal funds purchased and
Repurchase agreements 8,407 36 1.70% 7,140 43 2.39%
---------- -------- ------- ----------- ------- -------
Total interest bearing liabilities 214,587 1,299 2.40% 179,023 1,592 3.53%
Demand deposits 23,657 18,012
Other liabilities 1,662 1,603
---------- -----------
Total Liabilities 239,906 198,638
SHAREHOLDERS' EQUITY 20,523 19,046
---------- -----------
Total Liabilities
and Shareholders' Equity $ 260,429 $ 217,684
========= ==========
Net yield on earning assets $ 2,335 3.74% $ 2,080 3.98%
======= ====== ====== ======
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,
2002 and 2001, respectively. The effect of this adjustment is presented below
(in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 16,307 $ 274 6.67% $ 17,006 $ 302 7.05%
Loans 133,326 2,611 7.77% 119,768 2,602 8.62%
======= ======= ====== ========== ====== ======
Total earning assets $ 247,638 $ 3,834 6.14% $ 207,397 $ 3,853 7.37%
======= ======= ====== ========== ====== ======
Taxable equivalent net yield on
earning assets $2,535 4.06% $ 2,261 4.33%
======= ====== ======= ======
14
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 $24,456,172 or 29.8% from $82,202,161 at
December 31, 2001, to $106,658,333 at September 30, 2002. Taxable securities
comprised 84.5% of total securities at September 30, 2002, as compared to 81.0%
at December 31, 2001. 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.
Available for sale securities, at fair value increased $25,084,282 or 34.2%
from December 31, 2001, and represented 92% of the investment portfolio at
September 30, 2002. The increase was primarily due to purchases of
mortgage-backed securities. The held to maturity securities decreased $628,110
or 7.1% from December 31, 2001 and represented 8% of the investment portfolio as
of September 30, 2002. The decrease was primarily the result of maturities of
non-taxable municipal securities. 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 and represent temporary adjustments
in values. The carrying value of securities available for sale was increased by
$1,788,289 at September 30, 2002 and increased by $989,018 at December 31, 2001.
The market value of securities classified as held to maturity was above book
value by $321,012 and $158,100 at September 30, 2002 and December 31, 2001,
respectively.
Table Four
Investment Portfolio
The following table presents the book values of investment securities:
(in thousands) (Unaudited):
September 30, December 31,
2002 2001
------------- -----------
Securities held to maturity:
Obligations of states
and political subdivisions $ 8,226 $ 8,854
------- ------
Total held to maturity $ 8,226 $ 8,854
------- ------
Securities available for sale :
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 35,154 $ 31,353
Obligations of states
and political subdivisions 9,653 7,917
Corporate debt securities 6,827 8,086
Mortgage-backed securities 46,381 25,535
Equity Securities 417 457
------- -------
Total available for sale 98,432 73,348
------- -------
Total $106,658 $82,202
========= =======
- -------------------------------------------------------------------------------
15
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Table Five
Investment Portfolio ( Continued)
(in thousands)
The maturity distribution using book value including accretion of discounts and
amortization of premiums (expressed in thousands) and approximate yield of
investment securities at September 30, 2002 and December 31, 2001 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, 2002 December 31, 2001
--------------------------------------------- ----------------------------------------
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 $ -- -- % $ 5,593 3.02 % $ -- -- % $ 12,264 2.89 %
After One But
Within Five Years -- -- 25,359 3.73 -- -- 15,284 4.38
After Five But
Within Ten Years -- -- 3,760 4.03 -- -- 2,521 6.43
After Ten Years -- -- 442 2.34 -- -- 1,284 3.03
------- ----- ------- ------ -------- ------ -------- -----
-- -- 35,154 3.63 -- -- 31,353 3.91
States & Political Subdivisions
Within One Year 195 5.56 2,340 4.55 960 6.46 1,499 4.65
After One But
Within Five Years 4,514 6.20 4,732 4.48 4,043 6.21 4,914 5.43
After Five But
Within Ten Years 3,029 6.62 1,054 5.88 3,851 6.65 1,260 6.30
After Ten Years 488 4.56 1,527 4.69 -- -- 244 6.66
------- ----- ------- ------ -------- ------ -------- -----
8,226 6.24 9,653 4.68 8,854 6.43 7,917 5.46
Corporate Debt Securities
Within One Year -- -- -- -- -- -- 1,251 2.85
After One But
Within Five Years -- -- 5,085 5.33 -- -- 5,871 5.49
After Five But
Within Ten Years -- -- 1,742 6.01 -- -- 964 7.05
------- ----- ------- ------ -------- ------ -------- -----
-- -- 6,827 5.50 -- -- 8,086 5.27
Mortgage-Backed Securities -- -- 46,381 4.71 -- -- 25,535 5.75
Equity Securities -- -- 417 2.25 -- -- 457 2.67
------- ----- ------- ------ -------- ------ -------- -----
Total $ 8,226 6.24 % $ 98,432 4.37 % $ 8,854 6.43 % $ 73,348 4.86 %
======= ===== ======= ===== ======= ====== ======== =====
- ------------------------------------------------------------------------------
16
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Loans
- -----
Loans net of unearned income increased $13,235,692 or 10.9% from December
31, 2001. The additional growth in the loan portfolio during the first nine
months of 2002 was primarily due to increases in commercial loans, residential
real estate loans, and other loans, offset in part by the decrease in
installment loans. Commercial loans which include real estate secured by
non-farm, non residential and commercial and industrial loans comprise forty
percent (40%)of the loan portfolio. Real estate residential loans which include
real estate construction, real estate farmland, and real estate residential
loans comprise thirty-eight percent (38%) of the loan portfolio. Installment
loans comprise fourteen percent (14%) of the loan portfolio. Other loans include
nonrated industrial development obligations, direct financing leases and other
loans comprise eight percent (8%) of the loan portfolio. The changes in the
composition of the loan portfolio from December 31, 2001 to September 30, 2002
were a 1% increase in residential real estate loans, a 1% increase in other
loans and a 2% decrease in installment 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 Five
Loan Portfolio
(Unaudited)
Loans outstanding are as follows (in thousands) :
September 30, December 31,
------------------------- ----------
2002 2001 2001
Real Estate - Residential
Real estate-construction $ 814 $ 191 $ 395
Real estate-farmland 328 120 212
Real estate-residential 49,371 43,995 44,554
---------- ---------- ----------
$ 50,513 $ 44,306 $ 45,161
---------- ---------- ----------
Commercial
Real estate-secured by
nonfarm, nonresidential $ 37,927 $ 33,133 $ 34,525
Commercial & industrial 16,268 14,027 13,889
---------- ---------- ----------
$ 54,195 $ 47,160 $ 48,414
---------- ---------- ----------
Installment
Installment and other
loans to individuals $ 18,587 $ 21,594 $ 19,517
---------- ---------- ----------
Others
Nonrated industrial
development obligations $ 10,924 $ 7,202 $ 7,784
Other loans 75 176 187
---------- ---------- ----------
$ 10,999 $ 7,378 $ 7,971
---------- ---------- ----------
Total 134,294 120,438 121,063
Less unearned interest 114 92 119
---------- ---------- ----------
$ 134,180 $ 120,346 $ 120,944
========= ========= =========
17
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,
2002 and December 31, 2001 (in thousands) (Unaudited):
September 30, 2002
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 1,879 $ 7,677 $ 6,712
Real Estate - construction 427 21 366
--------- --------- ---------
Total $ 2,306 $ 7,698 $ 7,078
======== ======== ========
December 31, 2001
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 966 $ 6,465 $ 6,458
Real Estate - construction 165 6 224
--------- --------- ---------
Total $ 1,131 $ 6,471 $ 6,682
======== ======== ========
The following table presents an analysis of fixed and variable rate loans as of
September 30, 2002 and December 31, 2001 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands)
(Unaudited):
September 30, 2002
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 1,709 $ 5,007 $ 2,109
Variable Rates 597 2,691 4,969
--------- --------- ---------
Total $ 2,306 $ 7,698 $ 7,078
======== ======== ========
December 31, 2001
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
---------------------------- ----------
Fixed Rates $ 1,095 $ 4,585 $ 1,557
Variable Rates 36 1,886 5,125
--------- --------- ---------
Total $ 1,131 $ 6,471 $ 6,682
======== ======== ========
- ---------------------------------------------------------------------------
18
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Total non-performing loans were $1,395,000 at September 30, 2002 and
$1,317,000 at December 31, 2001. Loans classified as non-accrual were $1,280,000
or 1.0% of total loans as of September 30, 2002, as compared to $1,184,000 or
1.0% of total loans at December 31, 2001. There were no loans classified as
renegotiated as of September 30, 2002 and December 31, 2001. The loans past due
90 days or more increased $17,000 to $90,000 at September 30, 2002. Other real
estate owned was $25,000 at September 30, 2002 as compared to $60,000 at
December 31, 2001. 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,
----------------- ------------
2002 2001 2001
Past Due 90 Days or More:
Real Estate - residential $ 0 $ 54 $ 21
Commercial 75 88 26
Installment 15 134 26
------- ------- ------------
$ 90 $ 276 $ 73
------- ------- ------------
Non-accrual:
Real Estate - residential $ 22 $ 27 $ 27
Commercial 1,250 1,174 1,124
Installment 8 56 33
------- ------- ------------
$ 1,280 $ 1,257 $ 1,184
------- ------- ------------
Other Real Estate $ 25 $ 137 $ 60
------- ------- ------------
Total non-performing assets $ 1,395 $ 1,670 $ 1,317
====== ====== ===========
Total non-performing assets
to total loans and
other real estate 1.04% 1.39% 1.09%
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 $80,629, $76,700 and
$96,600 for the periods ended September 30, 2002 and 2001 and December 31, 2001,
respectively.
As of September 30, 2002, 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.
- ------------------------------------------------------------------------------
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
- ----------------------------------
The corporation maintains an allowance for possible loan losses to absorb
probable loan losses. The provision for loan losses was $450,000 during the nine
months ended September 30, 2002, as compared to $423,000 during the same period
of the prior year. The allowance for possible loan losses represented 1.45% and
1.36% of total loans outstanding at September 30, 2002 and December 31, 2001,
respectively. The reserve for possible loan losses is considered to be adequate
to provide for future losses in the portfolio. The amount charged to earnings is
based upon management's evaluations of the loan portfolio, as well as current
and anticipated economic conditions, net loans charged off, past loan
experiences, changes in character of the loan portfolio, specific problem loans
and delinquencies and other factors.
Table Eight
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,
------------------- ------------
2002 2001 2001
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,646 $ 1,302 $ 1,302
Loans Charged Off:
Real Estate - residential 2 -- --
Commercial 134 79 95
Installment 53 111 164
-------- -------- ----------
189 190 259
Recoveries:
Real Estate - residential 0 4 4
Commercial 29 11 12
Installment 11 12 14
-------- -------- ----------
40 27 30
Net Charge-offs 149 163 229
Additions Charged to Operations 450 423 573
-------- -------- ----------
Balance at end of period: $ 1,947 $ 1,562 $ 1,646
======= ======= =========
Average Loans Outstanding $ 129,451 $ 117,399 $ 118,224
======= ======= =========
Ratio of net charge-offs
to Average loans
outstanding for the period .12% .14% .19%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.45% 1.30% 1.36%
- ------------------------------------------------------------------------------
20
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 Ten. The Corporation has historically
maintained the allowance for loan losses at a level greater than actual
charge-offs. In determining the allocation of the allowance for possible loan
losses, charge-offs for 2002 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, 2001, and the nine
month period ended September 30, 2002 ( 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,
--------------- -----------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
--------------- --------------- ---------------- -------------- ---------------- ------------------
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 $ 271 37.6% $ 263 37.3% $ 241 37.9% $ 238 36.2% $ 208 34.2% $ 202 34.6%
Commercial 1,076 40.4 821 40.0 549 37.0 490 38.7 490 37.8 622 38.0
Installment 579 13.8 541 16.1 492 20.9 400 22.2 374 23.8 343 23.6
Others 21 8.2 21 6.6 20 4.2 20 2.9 20 4.2 20 3.8
Unallocated -- -- -- -- -- -- -- -- 31 -- 31 -
------ ----- ------ ----- ---- ----- ---- ----- ---- ------ ---- ------
Total $1,947 100.0% $1,646 100.0% $1,302 100.0% $1,148 100.0% $1,123 100.0% $1,218 100.0%
====== ===== ====== ===== ==== ===== ==== ===== ==== ====== ==== ======
21
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Deposits
- --------
Total deposits were $231,269,890 at September 30, 2002 as compared to
$203,771,954 at December 31, 2001, an increase of 13.5%. Approximately $15.7
million or 7.7% of the increase in deposits primarily was due to the acquisition
of the deposits of Wheeling National Bank's New Martinsville branch office which
occurred during the first quarter of 2002. Deposit growth increased primarily in
time deposits. At September 30, 2002, noninterest bearing deposits comprised 10%
of total deposits and interest bearing deposits which include NOW, money market,
savings and time deposits comprised 90% of total deposits. There was no change
in the deposit mix from December 31, 2001 to September 30, 2002.
Table Ten
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, 2002
Maturities of Time Deposits in Excess of $100,000
--------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
------- ------------ ------------- ------ -----
(Expressed in Thousands)
Time Certificates
of Deposit $ 3,042 $ 2,452 $ 5,478 $ 15,201 $ 26,173
December 31, 2001
Maturities of Time Deposits in Excess of $100,000
--------------------------------------------------
In Three Over Three Over Six Over
Months And Less Than And Less Than Twelve
Or Less Six Months Twelve Months Months TOTAL
------- ------------ ------------- ------ -----
(Expressed in Thousands)
Time Certificates
of Deposit $ 3,876 $ 3,578 $ 3,200 $ 10,932 $ 21,586
Federal funds purchased and repurchase agreements
- --------------------------------------------------
Federal funds purchased and repurchase agreements are short-term
borrowings, of which repurchase agreements represent the largest component.
Repurchase agreements were $10,644,067 at September 30, 2002, an increase of
$4,106,419, as compared to December 31, 2001. The increase of repurchase
agreements was primarily due to an increase in the balances maintained by
existing commercial customers.
- ------------------------------------------------------------------------------
22
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
- ------------------------------------------------------------------------------
Capital Resources
- -----------------
A strong capital base is vital to continued profitability because it
promotes depositor and investor confidence and provides a solid foundation for
future growth. Stockholders' equity increased 5.4% during the first nine months
of 2002 entirely from current earnings after quarterly dividends, and increased
2.5% resulting from the effect of the change in the net unrealized gain on
securities available for sale. Stockholders' equity amounted to 8.2% of total
assets at September 30, 2002 as compared to 8.7% at December 31, 2001.
The Holding Company's primary source of funds for payment of dividends to
shareholders is from the dividends from its subsidiary banks. Earnings from
subsidiary bank operations are expected to remain adequate to fund payment of
stockholders' dividends and internal growth. In management's opinion, the
subsidiary banks have the capability to upstream sufficient dividends to meet
the cash requirements of the Holding Company.
The Holding Company is subject to regulatory risk-based capital guidelines
administered by the Federal Reserve Board. These risk-based capital guidelines
establish minimum capital ratios of Total capital, Tier 1 Capital, and Leverage
to assess the capital adequacy of bank holding companies.
The following chart shows the regulatory capital levels for the company at
September 30, 2002, September 30, 2001, and December 31, 2001:
September 30, Dec. 31
-------------- -------
Ratio Minimum 2002 2001 2001
- ---------------------- -------- ------- ----- -----
Leverage Ratio 3% 7.0 8.5 8.4
Risk Based Capital
Tier 1 (core) 4% 11.5 13.2 13.1
Tier 2 (total) 8% 12.7 14.3 14.3
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 $98,432,592
classified as available for sale at September 30, 2002. 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. The subsidiary banks had an
available line with the FHLB in the aggregate amount of $10,596,000 at September
30, 2002. As of September 30, 2002 there were no borrowings outstanding pursuant
to these agreements.
At September 30, 2002 and December 31, 2001, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $22,876,000 and
$19,511,000,respectively. As of September 30, 2002, management placed a high
probability for required funding within one year of approximately $18,718,000.
Approximately $3,559,000 is principally unused home equity and credit card lines
on which management places a low probability for required funding.
23
FIRST WEST VIRGINIA BANCORP, INC.
PART I
Item 3 Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's subsidiary banks use an asset/liability model to measure
the impact of changes in interest rates on net interest income on a periodic
basis. Assumptions are made to simulate the impact of future changes in interest
rates and/or changes in balance sheet composition. The effect of changes in
future interest rates on the mix of assets and liabilities may cause actual
results to differ from simulated results. Guidelines established by the
Company's subsidiary banks provide that the estimated net interest income may
not change by more than 10% in a one year period given a +/- 200 basis point
parallel shift in interest rates. Excluding the potential effect of interest
rate changes on assets and liabilities of the Holding Company which are not
deemed material, the anticipated impact on net interest income of the subsidiary
banks at September 30, 2002 were as follows: given a 200 basis point increase
scenario net interest income would be increased by approximately 4.4%, and given
a 200 basis point decrease scenario net interest income would be reduced by
approximately 11.8%. Under the 200 basis point increase interest rate scenario,
the subsidiary banks were within the established guideline. However, the
subsidiary banks were not within the established guideline given the 200 basis
point decrease interest rate scenario at September 30, 2002.
Item 4 Controls and Procedures
- -------------------------------
Evaluation of Disclosure Controls and Procedures
- ---------------------------------------------------
The Company's President and Chief Executive Officer, Charles K. Graham,
and Senior Vice President and Chief Financial Officer, Francie P. Reppy, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days
prior to the filing of this report (the "Evaluation Date"), have concluded that,
as of the Evaluation Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that material information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Changes in Internal Controls
- -----------------------------
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect the Company's disclosure
controls and procedures subsequent to the date of their evaluation, nor were
there any significant deficiencies or material weaknesses in the Company's
internal controls. As a result, no corrective actions were required or
undertaken.
24
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
- -----------------------------------
The nature of the business of the Holding Company's subsidiaries
generates a certain amount of litigation involving matters arising in the
ordinary course of business. The Company is unaware of any litigation other than
ordinary routine litigation incidental to the business of the Company, to which
it or any of its subsidiaries is a party or of which any of their property is
subject.
Item 2 Changes in Securities
- ---------------------------------------
Inapplicable
Item 3 Defaults Upon Senior Securities
- -------------------------------------------------
Inapplicable
Item 4 Submission of Matters to Vote of Security Holders
- -------------------------------------------------------------------
Inapplicable
Item 5 Other Information
- -----------------------------------
On October 8, 2002, First West Virginia Bancorp, Inc. entered into a Stock
Purchase and Right of First Refusal Agreement with Steel Valley Bank, National
Association. The Agreement, is filed herewith and incorporated herein by
reference as Exhibit 10.8 of Form 10-Q as of September 30, 2002.
25
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 and nine month periods ended September 30, 2002, 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,
2002.
(c) Exhibits
--------
The exhibits listed in the Exhibit Index on page 30 of this FORM 10-Q are
incorporated by reference and/or filed herewith.
26
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/ Charles K. Graham
---------------------------------------------------------------
Charles K. Graham
President and Chief Executive Officer/Director
By: /s/ Francie P. Reppy
---------------------------------------------------------------
Francie P. Reppy
Senior Vice President and Chief Financial Officer
Dated: November 8, 2002
27
CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, (the "Report") of First West Virginia Bancorp, Inc., the
("Company") as filed with the Securities and Exchange Commission on the date
hereof, each of the undersigned, in the capacities and on the dates indicated
below certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: November 8, 2002 /s/ Charles K. Graham
----------------------------------------------------
Charles K. Graham
President and Chief Executive Officer/Director
(Principal Executive Officer)
Date: November 8, 2002 /s/ Francie P. Reppy
----------------------------------------------------
Francie P. Reppy
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
28
Certification
I, Charles K. Graham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
First West Virginia Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to te registrant, including
its consolidated subsidiaries, is made known to us by others
within that entity, particularly during the period in which
this quarterly report is being prepared.
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 8, 2002 /s/ Charles K. Graham
-------------------------------------------------
Charles K. Graham
President and Chief Executive Officer/Director
(Principal Executive Officer)
29
Certification
I, Francie P. Reppy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
First West Virginia Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to te registrant, including
its consolidated subsidiaries, is made known to us by others
within that entity, particularly during the period in which
this quarterly report is being prepared.
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 8, 2002 /s/ Francie P. Reppy
----------------------------------------------------
Francie P. Reppy
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
30
EXHIBIT INDEX
The following exhibits are filed herewith and/or are incorporated herein by
reference.
Exhibit
Number Description
- ------- -----------
10.1 Employment Contract dated December 21, 2001 between
First West Virginia Bancorp, Inc. and Charles K. Graham.
Incorporated herein by reference.
10.2 Employment Contract dated December 21, 2001 between
First West Virginia Bancorp, Inc. and Beverly A. Barker.
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 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.
10.5 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.
10.6 Lease dated May 20, 1998 between Progressive Bank, N.A.
and Robert Scott Lumber Company. Incorporated herein by reference.
10.7 Lease dated May 12, 2001 between Progressive Bank, N.A. and Sylvan J.
Dlesk and Rosalie J. Dlesk doing business as Dlesk Realty & Investment
Company. Incorporated herein by reference.
10.8 Stock Purchase and Right of First Refusal Agreement dated October 8,
2002 between Steel Valley Bank, National Association and First West
Virginia Bancorp, Inc. Filed herewith and 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
99.1 Independent Accountant's Report. Filed herewith and incorporated
herein by reference.