FIRST WEST VIRGINIA BANCORP INC - 10-Q Quarterly Report

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, 2004

¨	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

incorporation or organization)

(I.R.S. Employer

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

Indicate by check-mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ¨ Yes x 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, 2004:

Common Stock, $5.00 Par Value, shares outstanding 1,538,443 shares

FORM 10-Q INDEX


PART I - Financial Information

Item 1	Financial Statements and Accompanying Notes	4-10

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-26

Item 3	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4	Controls and Procedures	27

PART II - Other Information

Item 1	Legal Proceedings	28

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3	Defaults upon Senior Securities	28

Item 4	Submission of matters to a Vote of Security Holders	28

Item 5	Other Information	28

Item 6	Exhibits and Reports on Form 8-K	28

	Exhibit Index	30

	Reports on Form 8-K	28

	Signatures	29

	Certifications	36-40

FIRST WEST VIRGINIA BANCORP, INC.

PART I

FINANCIAL INFORMATION

First West Virginia Bancorp, Inc.

CONSOLIDATED BALANCE SHEETS


	September 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
Cash and due from banks	$	6,307,685		$	6,553,689
Due from banks - interest bearing		517,733			470,705
Federal funds sold		6,066,000			—

Total cash and cash equivalents		12,891,418			7,024,394
Investment securities:
Available-for-sale (at fair value)		106,407,520			115,269,352
Held-to-maturity (fair value of $3,502,228 and $4,185,960, respectively)		3,362,457			3,975,685
Loans		155,633,413			146,710,494
Less allowance for loan losses		(2,263,158	)		(2,304,868	)

Net loans		153,370,255			144,405,626
Premises and equipment, net		3,898,592			3,927,751
Accrued income receivable		1,453,499			1,275,846
Other intangible assets		303,234			369,797
Goodwill		1,644,119			1,644,119
Bank owned life insurance		3,050,032			—
Other assets		2,860,054			6,218,290

Total assets	$	289,241,180		$	284,110,860

LIABILITIES
Noninterest bearing deposits:
Demand	$	25,775,344		$	23,938,810
Interest bearing deposits:
Demand		38,663,148			37,236,254
Savings		89,718,539			89,461,195
Time		86,574,696			91,311,071

Total deposits		240,731,727			241,947,330
Federal funds purchased and securities sold under agreements to repurchase		19,752,939			15,088,834
Federal Home Loan Bank borrowings		2,434,871			2,463,464
Accrued interest payable		374,078			384,817
Other liabilities		2,005,327			1,195,800

Total liabilities		265,298,942			261,080,245

STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value: 1,538,443 shares issued at September 30, 2004 and December 31, 2003		7,692,215			7,692,215
Treasury stock - 10,000 shares at cost:		(228,100	)		(228,100	)
Surplus		4,982,606			4,982,606
Retained earnings		11,082,777			9,961,698
Accumulated other comprehensive income		412,740			622,196

Total stockholders’ equity		23,942,238			23,030,615

Total liabilities and stockholders’ equity	$	289,241,180		$	284,110,860

The accompanying notes are an integral part of the unaudited consolidated financial statements.

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended, September 30,					Nine Months Ended, September 30,
	2004			2003		2004		2003
	(Unaudited)					(Unaudited)
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable	$	2,297,095		$	2,228,765	$	6,691,667	$	6,655,208
Tax-exempt		163,317			148,685		469,645		441,281
Debt securities:
Taxable		761,919			726,989		2,287,872		2,324,963
Tax-exempt		178,706			180,464		485,471		525,931
Dividends		2,435			3,696		7,886		13,096
Other interest income		4,785			6,494		16,888		15,972
Federal funds sold		20,287			17,280		45,392		63,400

Total interest and dividend income		3,428,544			3,312,373		10,004,821		10,039,851

INTEREST EXPENSE
Deposits		943,531			1,070,245		2,872,073		3,373,121
Federal funds purchased and repurchase agreements		76,285			55,009		194,589		126,896
FHLB borrowings		29,043			1,364		87,143		1,364

Total interest expense		1,048,859			1,126,618		3,153,805		3,501,381

Net interest income		2,379,685			2,185,755		6,851,016		6,538,470

PROVISION FOR POSSIBLE LOAN LOSSES		90,000			45,000		210,000		210,000

Net interest income after provision for possible loan losses		2,289,685			2,140,755		6,641,016		6,328,470

NONINTEREST INCOME
Service charges and other fees		200,174			198,908		602,512		548,012
Net gains (losses) on available for sale securities		(880	)		8		3,046		105,208
Other operating income		136,234			112,377		324,421		293,123

Total noninterest income		335,528			311,293		929,979		946,343

NONINTEREST EXPENSE
Salary and employee benefits		913,492			931,154		2,646,814		2,525,278
Net occupancy expense of premises		250,542			233,953		779,055		718,066
Other operating expenses		543,776			494,366		1,534,276		1,497,127

Total noninterest expense		1,707,810			1,659,473		4,960,145		4,740,471

Income before income taxes		917,403			792,575		2,610,850		2,534,342

INCOME TAXES		209,430			183,652		618,558		615,219

Net income	$	707,973		$	608,923	$	1,992,292	$	1,919,123

WEIGHTED AVERAGE SHARES OUTSTANDING		1,528,443			1,538,443		1,528,443		1,538,443

EARNINGS PER COMMON SHARE	$	0.46		$	0.40	$	1.30	$	1.25

The accompanying notes are an integral part of the unaudited consolidated financial statements.

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (loss)			Comprehensive Income			Total
	Common Stock
	Shares	Amount
BALANCE, DECEMBER 31, 2002	1,538,443	$	7,692,215	$	4,982,606	$	8,566,520		$	—		$	1,218,292					$	22,459,633
Comprehensive income:
Net income	—		—		—		1,919,123			—			—		$	1,919,123			1,919,123
Other comprehensive income, net of tax
Unrealized losses on securities net of reclassification adjustment (see disclosure)	—		—		—		—			—			(540,108	)		(540,108	)		(540,108	)

Comprehensive income															$	1,379,015

Cash dividend ($.54 per share)	—		—		—		(830,759	)		—			—						(830,759	)

BALANCE, SEPTEMBER 30, 2003	1,538,443	$	7,692,215	$	4,982,606	$	9,654,884		$	—		$	678,184					$	23,007,889


	Common Stock			Surplus		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (loss)			Comprehensive Income			Total
	Common Stock
	Shares	Amount
BALANCE, DECEMBER 31, 2003	1,538,443	$	7,692,215	$	4,982,606	$	9,961,698		$	(228,100	)	$	622,196					$	23,030,615
Comprehensive income:
Net income	—		—		—		1,992,292			—			—		$	1,992,292			1,992,292
Other comprehensive income, net of tax
Unrealized losses on securities net of reclassification adjustment (see disclosure)	—		—		—		—			—			(209,456	)		(209,456	)		(209,456	)

Comprehensive income															$	1,782,836

Cash dividend ($.57 per share)	—		—		—		(871,213	)		—			—						(871,213	)

BALANCE, SEPTEMBER 30, 2004	1,538,443	$	7,692,215	$	4,982,606	$	11,082,777		$	(228,100	)	$	412,740					$	23,942,238


	For the Nine Months Ended September 30,
	2004			2003
Disclosure of reclassification amount, net of tax:
Unrealized holding (losses) arising during the period	$	(207,556	)	$	(474,490	)
Less reclassification adjustment for gains included in net income		1,900			65,618

Net unrealized (losses) on securities	$	(209,456	)	$	(540,108	)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

First West Virginia Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
	2004			2003
OPERATING ACTIVITIES
Net income	$	1,992,292		$	1,919,123
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		210,000			210,000
Depreciation and amortization		328,895			325,862
Amortization of investment securities, net		446,555			763,749
Investment security gains		(3,046	)		(105,208	)
Gain on sales of premises and equipment		(3,726	)		(436	)
Increase in interest receivable		(177,653	)		(263,860	)
Decrease in interest payable		(10,739	)		(88,801	)
Other, net		(461,849	)		(523,221	)

Net cash provided by operating activities		2,320,729			2,237,208

INVESTING ACTIVITIES
Net increase in loans, net of charge-offs		(9,219,737	)		(2,511,013	)
Proceeds from sales of securities available-for-sale		8,399,785			4,054,077
Proceeds from maturities of securities available-for-sale		58,382,194			161,593,800
Proceeds from maturities of securities held-to-maturity		610,000			3,155,000
Principal collected on mortgage-backed securities		14,049,953			29,544,945
Purchases of securities available-for-sale		(68,040,258	)		(218,404,942	)
Recoveries on loans previously charged-off		45,108			8,496
Purchases of premises and equipment		(243,548	)		(124,953	)
Purchase of bank owned life insurance		(3,000,000	)		—
Proceeds from sales of premises and equipment		14,101			159,471

Net cash used in (provided by) investing activities		997,598			(22,525,119	)

FINANCING ACTIVITIES
Net increase (decrease) in deposits		(1,215,603	)		9,776,664
Dividends paid		(871,212	)		(830,759	)
Increase in short-term borrowings		4,664,105			8,661,216
Increase (decrease) in FHLB borrowings		(28,593	)		1,320,000

Net cash provided by financing activities		2,548,697			18,927,121

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,867,024			(1,360,790	)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		7,024,394			12,500,496

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,891,418		$	11,139,706

Supplemental Disclosures:
Cash Paid for Interest	$	3,164,544		$	3,590,182
Cash Paid for Income Taxes	$	786,571		$	609,599

The accompanying notes are an integral part of the unaudited consolidated financial statements.

First West Virginia Bancorp, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004 AND 2003

(Unaudited)

Note 1 - Critical Accounting Policies

The accounting and reporting policies of First West Virginia Bancorp, Inc. ( the “Company”) and its subsidiary were prepared in accordance with accounting principles generally accepted in the United States of America, (“US GAAP”) and to general practices within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the accounting policies described below as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company’s consolidated financial statements and management’s discussion and analysis.

INCOME RECOGNITION

The Company recognizes interest income by methods conforming to US GAAP that include general accounting practices within the financial services industry. Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding, including yield adjustments resulting from the amortization of loan costs and premiums on investment securities and accretion of loan fees and discounts on investment securities.

In the event management believes collection of all or a portion of contractual interest on a loan has become doubtful, which generally occurs after the loan is 90 days past due, the accrual of interest is discontinued. In addition, previously accrued interest deemed uncollectible that was recognized in income is reversed. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured. A nonaccrual loan is restored to accrual status when it is brought current or has performed in accordance with contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer doubtful.

ALLOWANCE FOR LOAN LOSSES

In general, determining the amount of the allowance for loan losses requires significant judgment and the use of estimates by management. The Company maintains an allowance for loan losses to absorb probable losses in the loan portfolio based on a quarterly analysis of the portfolio. This formal analysis determines an appropriate level and allocation of the allowance for loan losses among loan types and resulting provision for loan losses by considering factors affecting loan losses, including specific losses, levels and trends in impaired and nonperforming loans, historical loan loss experience, current national and local economic conditions, volume, growth and composition of the portfolio, regulatory guidance and other relevant factors. Management continually monitors the loan portfolio 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 to evaluate the adequacy of the allowance. The provision could increase or decrease each quarter based upon the results of management’s formal analysis.

The amount of the allowance for loan losses for the various loan types represents management’s estimate of expected losses from existing loans based upon specific allocations for individual lending relationships and historical loss experience for each category of homogeneous loans. Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral. While allocations are made to specific loans and pools of loans, the allowance is available for all loan losses.

First West Virginia Bancorp, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2004 AND 2003

(Unaudited)

Note 1 - Critical Accounting Policies - (Continued)

Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances concerning the loan, the credit worthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed. Individual loan reviews are based upon specific quantitative and qualitative criteria, including the size of the loan, loan quality ratings, value of collateral, repayment ability of borrowers, and historical experience factors. The historical experience factors utilized for individual loan reviews are based upon past loss experience, known trends in losses and delinquencies, the growth of loans in particular markets and industries, and known changes in economic conditions in the particular lending markets. Allowances for homogeneous loans (such as residential mortgage loans, personal loans, etc.) are evaluated based upon historical loss experience, trends in losses and delinquencies, growth of loans in particular markets, and known changes in economic conditions in each lending market. There can be no assurance the allowance for loan losses will be adequate to cover all losses, but management believes the allowance for loan losses in the amount of $2,263,158 at September 30, 2004, was adequate to provide for probable losses from existing loans based on information currently available. While management uses available information to provide for loan losses, the ultimate collectibility of a substantial portion of the loan portfolio, and the need for future additions to the allowance, will be based on changes in economic conditions and other relevant factors. As such, an adverse change in economic activity could reduce cash flows for both commercial and individual borrowers, which would likely cause the Company to experience increases in problem assets, delinquencies and losses on loans.

INVESTMENT SECURITIES

Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities available for sale or held to maturity. Debt securities classified as held to maturity are stated at cost adjusted for amortization of premium and accretion of discount which are computed using the interest method and recognized as adjustments of interest income. Certain other debt and equity securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.

Common stock of the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank represents ownership interest in institutions that are wholly owned by other financial institutions. These equity securities are accounted for at cost and are classified with other assets.

While temporary changes in the market value of available-for-sale securities are not recognized in earnings, a decline in fair value below amortized cost deemed to be other-than-temporary results in an adjustment to the cost basis of the investment, with a corresponding loss charged against earnings. Management evaluates the investment securities for other-than-temporary declines in estimated fair value on a quarterly basis. This analysis requires management to consider various factors in order to determine if a decline in estimated fair value is temporary or other-than-temporary. These factors include duration and magnitude of the decline in value, the financial condition of the issuer, and the company’s ability and intent to continue holding the investment for a period of time sufficient to allow for any anticipated recovery in market value. At September 30, 2004, there were no investment securities identified by management to be other-than-temporarily impaired. If investments decline in fair value due to adverse changes in the financial markets, charges to income could occur in future periods.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company purchased the deposits of another financial institution in 2001. An identifiable intangible asset resulted from the purchase of the core deposits and, as such, are amortized into noninterest expense on the straight-line basis over the period the Company expects to benefit from such assets (7 years). While management feels the assumptions and variables used to value the acquisition was reasonable, the use of different, but still reasonable, assumptions could produce different results. The Company recognized amortization expense of $22,188 in both of the three months ended September 30, 2004 and 2003 and $66,564 in both of the nine months ended September 30, 2004 and 2003. The unamortized balance from the purchase of these core deposit intangible assets is $303,234 and $369,797 at September 30, 2004 and December 31, 2003, respectively.

The Company has approximately $1.6 million of goodwill, resulting from the purchase of a less-than-whole financial institution. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. Goodwill and other intangibles are periodically reviewed for impairment. No impairment losses were recognized. Additionally, future events could cause management to conclude that impairment indicators exist and that the goodwill is impaired, which would result in the Company recording an impairment loss. Any resulting impairment loss could have a material, adverse impact on the Company’s financial condition and results of operations.

First West Virginia Bancorp, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2004 AND 2003

(Unaudited)

Note 1 - Critical Accounting Policies - (Continued)

INCOME TAXES

The Company and its subsidiary file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period. The provision for income taxes during the current period is at a rate which management believes will approximate the effective rate for the year.

CASH FLOWS

Cash and cash equivalents consist of cash and due from banks and federal funds sold.

COMPREHENSIVE INCOME

The Company is required to present comprehensive income in a full set of general-purpose financial statements for all periods presented. The following represents comprehensive income for the three months ended September 30, 2004, and 2003.


	For the three months ended September 30,
	2004		2003
Net income	$	707,973	$	608,923
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities net of reclassification adjustment		981,848		(587,660	)

Comprehensive Income	$	1,689,821	$	21,263

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued a revision to Interpretation 46, Consolidation of Variable Interest Entities, which established standards for identifying a variable interest entity (“VIE”) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. The Interpretation requires consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the interpretation, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. The adoption of this Interpretation did not have a material effect on the Company’s financial position or results of operations.

In December 2003, the Financial Accounting Standards Board (“FASB”) revised FAS No. 132, Employers’ Disclosures about Pension and Other Postretirement Benefit. This statement retains the disclosures required by FAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and requires additional information on changes in the benefit obligations and fair value of plan assets. Additional disclosures include information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This statement retains reduced disclosure requirements for nonpublic entities from FAS No. 132, and it includes reduced disclosure for certain of the new requirements. This statement is effective for financial statements with fiscal years ending after December 15, 2003. The interim disclosures required by this statement are effective for interim periods beginning after December 15, 2003. The adoption of this statement did not have a material effect on the Company’s disclosure requirements.

In March 2004, the Financial Accounting Standards Board (“FASB”) reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 (“EITF 03-1”), The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (“SFAS”) No. 115, Accounting for Certain Investments In Debt and Equity Securities and certain other investments. EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. EITF 03-1 cost method investment and disclosure provisions were effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues additional guidance. The Company adopted cost method investment and disclosure provisions of EITF 03-1 on June 30, 2004. The adoption did not have a material impact on the consolidated financial statements, results of operations or liquidity of the Company.

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 one wholly-owned subsidiary: Progressive Bank, N.A., which operates in Wheeling, Wellsburg, Moundsville, New Martinsville, Buckhannon and Weston, West Virginia and Bellaire, Ohio. 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 Company), and its subsidiary for the three and nine months ended September 30, 2004 and 2003. 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 Annual Report contained on Form 10-K for the year ended December 31, 2003.

Forward-Looking Information

Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause action results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance.

OVERVIEW

The Company reported net income of $1,992,292 or $1.30 per share for the nine months ended September 30, 2004 compared to $1,919,123 or $1.25 per share for the same period during 2003. The increase of $73,169 or 3.8% in earnings was primarily due to the increase in net interest income, offset in part by the increase in noninterest expenses and the decrease in noninterest income for the nine months ended September 30, 2004 as compared to the same period in 2003. For the first nine months of 2004, the Company’s return on average assets (ROA) was .94% as compared to .93% for the same period in 2003. The annualized return on average equity (ROE) was 11.63% for the first nine months of 2004 as compared to 11.81% for the same period in 2003.

For the third quarter of 2004, net income was $707,973 or $.46 per share as compared to $608,923 or $.40 per share for the same period in 2003. The increase in earnings of $99,050 or 16.3% was primarily due to the increase in net interest income combined with the increase in noninterest income, offset in part by the increases in operating expenses and the provision for loan losses. The ROA was .98% for the three months ended September 30, 2004 as compared to ..85% for the same period of the prior year. For the three months ended September 30, 2004 compared to September 30, 2003, the ROE was 12.16% and 10.93%, respectively.

The Company ended the third quarter of 2004 with total assets of $289,241,180, up 1.8% over the year ended December 31, 2003. Loans increased during the first nine months of 2004 by $8,922,919, or 6.1%, to $155,633,413. Total deposits decreased by $1,215,603, or .5% since December 31, 2003 and was primarily due to a decrease in time deposits offset in part by the increase in noninterest bearing and interest bearing deposits.

The allowance for loan losses amounted to $2,263,158 or 1.5% of total loans at September 30, 2004, compared to $2,304,868 or 1.5% of total loans at December 31, 2003. Non-performing assets were $1,383,000 at September 30, 2004, as compared to $2,169,000 at December 31, 2003. The decrease in non-performing assets was primarily due to the payments received on nonaccrual loans.

Table One is a summary of Selected Financial Data of the Company. The sections that follow discuss in more detail the information summarized in Table One.

Table One

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

Years ended

December 31,

2004

2003

2004

2003

2002

2001

SUMMARY OF OPERATIONS

Total interest income

3,429

3,312

10,005

10,040

13,319

14,309

14,772

Total interest expense

1,049

1,126

3,154

3,501

4,603

5,101

6,422

Net interest income

2,380

2,186

6,851

6,539

8,716

9,208

8,350

Provision for loan losses

210

435

540

573

Total other income

335

311

930

946

1,346

1,033

942

Total other expenses

1,708

1,659

4,960

4,741

6,342

6,062

5,324

Income before income taxes

917

793

2,611

2,534

3,285

3,639

3,395

Net income

708

609

1,992

1,919

2,518

2,674

2,412

PER SHARE DATA

Net income

0.46

0.40

1.30

1.25

1.64

1.74

1.57

Cash dividends declared

0.19

0.18

0.57

0.54

0.73

0.69

0.68

Book value per share

15.66

14.96

15.66

14.96

15.07

14.60

13.16

AVERAGE BALANCE SHEET SUMMARY

Total loans, net

152,314

138,128

150,725

136,562

137,826

131,383

118,224

Investment securities

110,781

123,091

111,113

115,911

117,758

93,962

73,639

Deposits - interest bearing

216,008

219,959

216,844

216,740

217,064

200,170

168,820

Stockholders’ equity

23,172

22,112

22,882

21,720

21,884

20,302

18,902

Total assets

286,230

284,754

284,077

275,152

277,952

252,543

217,006

SELECTED RATIOS

Return on average assets

0.98

0.85

0.94

0.93

0.91

1.06

1.11

Return on average equity

12.16

10.93

11.63

11.81

11.51

13.17

12.76

Average equity to average assets

8.10

7.77

8.05

7.89

7.87

8.04

8.71

Dividend payout ratio

41.30

45.00

43.85

43.20

44.51

39.66

43.31

Loan to Deposit ratio

64.65

57.71

64.65

57.71

60.64

59.11

59.35



	(Unaudited)
	September 30,				December 31,
	2004		2003		2003		2002		2001
BALANCE SHEET
Investments	$	109,770	$	126,607	$	119,245	$	108,065	$	82,202
Loans		155,633		139,162		146,711		136,772		120,944
Other assets		23,838		18,859		18,155		19,517		28,884

Total Assets	$	289,241	$	284,628	$	284,111	$	264,354	$	232,030

Deposits	$	240,732	$	241,152	$	241,947	$	231,376	$	203,772
Federal funds purchased and repurchase agreements		19,753		17,699		15,089		9,038		6,538
FHLB borrowings		2,435		1,320		2,464		—		—
Other liabilities		2,379		1,449		1,580		1,480		1,471
Stockholders’ equity		23,942		23,008		23,031		22,460		20,249

Total Liabilities and Stockholders’ equity	$	289,241	$	284,628	$	284,111	$	264,354	$	232,030

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

Net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities, is the primary source of earnings for the Holding Company. 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 sheets and an interest rate analysis for the three and nine months ended September 30, 2004 and 2003.

For the nine months ended September 30, 2004, net interest income was $6,851,016, an increase of $312,546 or 4.8%, from the same period in 2003. The increase in net interest income was primarily due to the decrease in interest paid on deposit liabilities combined with the increase in interest and fees on loans, offset in part by a decline in the interest earned on investment securities. The changes in the volume and mix of earning assets and interest bearing liabilities combined with the changes in the market rates of interest resulted in taxable equivalent net interest yields on average earning assets of 3.71% for the nine months ended September 30, 2004, as compared to 3.61% at December 31, 2003.

During the nine months ended September 30, 2004, interest expense decreased $347,576 or 9.9% as compared to the same period in 2003. The lower interest rates paid on interest bearing liabilities offset by the increase in the average volume of interest bearing liabilities primarily resulted in the decline in interest expense. The average yield paid on interest bearing liabilities decreased .21%, from 2.00% at December 31, 2003 to 1.79% at September 30, 2004. The decrease in the average yield on interest bearing liabilities was primarily due to the decrease in the interest rates paid on time deposits and savings deposits.

Interest income decreased $35,030 or .3% for the first nine months of 2004 compared to the same period of the prior year. Interest income on investment securities decreased $77,551 or 2.7% during the nine months ended September 30, 2004 over 2003 and was primarily the result of the decline in the average volume of investment securities. Interest and fees on loans increased $64,823 or .9% for the nine month period ended September 30, 2004 as compared to the same period in 2003. The increase in interest and fees on loans was primarily due to the increase in the average volume of loans. The taxable equivalent yield on loans decreased from 7.05% at December 31, 2003 to 6.62% at September 30, 2004.

For the three months ended September 30, 2004, net interest income was $2,379,685, an increase of $193,930 or 8.9%, from the same period in 2003. Net interest income increased during the third quarter of 2004 compared to the same period in 2003 primarily from the increase in interest income on loans and investment securities combined with decrease in the interest rates paid on deposit liabilities. Interest and fees on loans increased $82,962 or 3.5% for the three month period ended September 30, 2004 as compared to the same period in 2003. The increase in interest and fees on loans was primarily due to the increase in the average volume of loans. Interest income on investment securities increased $33,172 or 3.7% during the three months ended September 30, 2004 over 2003. The rise in the average interest yield on investment securities primarily contributed to the increased net interest income during the third quarter of 2004. During the three months ended September 30, 2004, interest expense decreased $77,759 or 6.9% as compared to the same period in 2003. The decrease in the interest rates paid on interest bearing liabilities, which were offset in part by an increase in the average volume of interest bearing liabilities primarily resulted in the decline in interest expense during the third quarter of 2004.

Noninterest Income

Non interest income decreased $16,364 or 1.7% for the nine months ended September 30, 2004 as compared to same period of the prior year. The decrease in noninterest income was primarily due to a decline in gains on sales of investment securities, offset in part by increases in service charges and other operating income.

Sales of investment securities for the nine months ended September 30, 2004 were primarily the result of sales by the Company. The Company accounted for securities gains of $12,557 and securities losses of $9,511 during the nine month period ended September 30, 2004 and securities gains of $120,664 and securities losses of $15,456 during the period ended September 30, 2003 and those sales were attributable to sales of marketable equity securities.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Noninterest Income (Continued)

Service charges increased $54,500 during the nine months ended September 30, 2004, up 9.9%, from the same period in 2003. The increase in service charges primarily resulted from an increase in the number of charges assessed on deposit accounts combined with an increase in the number of deposit holders compared to the prior year.

Other operating income represents fees from safe deposit box rentals, sales of checkbooks, sales of cashiers’ checks and money orders, utility collections, ATM charges and card fees, home equity credit line fees, credit life commissions, credit card fees and commissions and various other charges and fees related to normal customer banking relationships. For the nine month period ended September 30, 2004, other operating income increased $31,298 or 10.7% compared to the same period in 2003. The increase in other operating income resulted primarily from the earnings related to the cash surrender value of the bank owned life insurance on its key officers and the increase in checkbook sales, offset in part by a decrease in other credit card fees, ATM fees and utility collection fees.

For the third quarter of 2004, non interest income increased $24,235 or 7.8% as compared to same period of the prior year. The increase in noninterest income was primarily due to an increase in other operating income. The 21.2% increase in other operating income primarily resulted from the earnings related to the cash surrender value of the bank owned life insurance on its key officers.

Noninterest Expense

Noninterest expense increased $219,674 or 4.6% for the nine months ended September 30, 2004 as compared to same period of the prior year. The increase in noninterest expense was primarily due to increases in salary and employee benefits and net occupancy expense. Salary and employee benefits increased $121,536 or 4.8% during the nine months ended September 30, 2004 over the same period in 2003. The increased salary and employee benefit expense in 2004 compared to 2003 was primarily due to the hiring of additional personnel to enhance lending operations, increased employee benefit costs and normal annual merit adjustments. Occupancy expenses increased $60,989 or 8.5% during the nine months ended September 30, 2004 compared to the same period in 2003. Increased building maintenance costs, property taxes, insurance, and equipment repair and maintenance costs primarily contributed to the increase in occupancy expenses in 2004 as compared to 2003. The Company incurred additional maintenance costs with the operation of the internet web site and online banking program in 2004 compared to 2003. Other operating expenses increased $37,149 or 2.5% for the nine months ended September 30, 2004 over 2003. Other operating expenses primarily increased due to increases in service expense, advertising expense, other taxes, director fees and other expenses, offset in part by decreases in stationery and supplies expense, regulatory assessments, and postage expense.

For the three months ended September 30, 2004, noninterest expense increased $48,337 or 2.9% as compared to the same period of the prior year. The increase in noninterest expense was primarily due to increases in other operating expenses and occupancy expense. Other operating expenses increased $49,410 or 10.0% for the three months ended September 30, 2004 over 2003. Increases in service expense, other taxes, advertising expense, postage expense and other expenses, offset in part by decreases in stationery and supplies expense and director fees primarily contributed to the increase in other operating expenses. Occupancy expenses increased $16,589 or 7.1% during the three months ended September 30, 2004 compared to the same period in 2003. Increased building maintenance costs, taxes and insurance primarily contributed to the increase in occupancy expenses during the third quarter of 2004 as compared to the same period in 2003.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Income Taxes

Income tax expense for the nine month period ended September 30, 2004 was $618,558, an increase of .5% compared to the same period in 2003. Income tax expense increased primarily due to the increase in pre-taxable income of $76,508 during the first nine months of 2004 over the same period in 2003. Components of the income tax expense for September 30, 2004 were $507,816 for federal taxes and $110,742 for West Virginia corporate net income taxes. Income tax expense for the three months ended September 30, 2004 was $209,430, an increase of 14.0% compared to the same period in 2003. Income tax expense increased primarily due to the increase in pre-taxable income of $124,828 or 15.7% during the third quarter of 2004 as compared to 2003.

For federal income tax purposes, tax-exempt income is based on qualified state, county, and municipal bonds and loans. Tax-exempt income was $342,023 and $329,149 for the three month periods ended September 30, 2004 and 2003, respectively. For the nine months ended September 30, 2004 and 2003, tax-exempt income was $955,116 and $967,212, 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, 2004 and 2003 and for the year ended December 31, 2003.

Table Two Average Balance Sheets and Interest Rate Analysis

(dollars 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, 2004 and 2003 and the year ended December 31, 2003. Average balance sheet information for the periods ended September 30, 2004 and 2003 and December 31, 2003 was compiled using the daily average balance sheet. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification.


	(Unaudited) September 30, 2004							December 31, 2003							(Unaudited) September 30, 2003
	Average Volume			Interest		Average Rate		Average Volume			Interest		Average Rate		Average Volume			Interest		Average Rate
ASSETS:
Investment securities:
U.S. Treasury and other U. S. Government agencies	$	48,293		$	1,101	3.05	%	$	46,358		$	1,407	3.04	%	$	42,733		$	977	3.06	%
Mortgage backed securities		39,145			989	3.37	%		44,504			1,381	3.10	%		45,861			1,039	3.03	%
Obligations of states and political subdivisions		19,836			537	3.62	%		20,259			743	3.67	%		20,492			568	3.71	%
Other securities		3,839			146	5.08	%		6,637			343	5.17	%		6,825			267	5.23	%

Total Investment securities:		111,113			2,773	3.33	%		117,758			3,874	3.29	%		115,911			2,851	3.29	%
Interest bearing deposits		1,156			9	1.04	%		1,721			16	0.93	%		990			7	0.95	%
Federal funds sold		5,752			46	1.07	%		6,913			72	1.04	%		7,952			63	1.06	%
Loans, net of unearned income		150,725			7,161	6.35	%		137,826			9,329	6.77	%		136,562			7,097	6.95	%
Other earning assets		932			16	2.29	%		890			28	3.15	%		853			22	3.45	%

Total earning assets		269,678			10,005	4.96	%		265,108			13,319	5.02	%		262,268			10,040	5.12	%
Cash and due from banks		5,919							5,822							5,803
Bank premises and equipment		3,880							4,019							4,044
Other assets		6,861							5,110							5,141
Allowance for loan losses		(2,261	)						(2,107	)						(2,104	)

Total Assets	$	284,077						$	277,952						$	275,152

LIABILITIES
Time deposits	$	88,711		$	2,112	3.18	%	$	94,156		$	3,285	3.49	%	$	94,970		$	2,529	3.56	%
Savings deposits		89,132			666	1.00	%		86,322			952	1.10	%		85,752			734	1.14	%
Interest bearing demand deposits		39,001			94	0.32	%		36,586			142	0.39	%		36,018			110	0.41	%
Federal funds purchased and repurchase agreements		15,879			195	1.64	%		12,671			199	1.57	%		10,916			127	1.56	%
FHLB borrowings		2,449			87	4.75	%		544			26	4.78	%		39			1	3.43	%

Total interest bearing liabilities		235,172			3,154	1.79	%		230,279			4,604	2.00	%		227,695			3,501	2.06	%
Demand deposits		24,378							24,157							24,156
Other liabilities		1,645							1,632							1,581

Total Liabilities		261,195							256,068							253,432
STOCKHOLDERS’ EQUITY		22,882							21,884							21,720

Total Liabilities and Stockholders’ Equity	$	284,077						$	277,952						$	275,152

Net yield on earning assets				$	6,851	3.39	%				$	8,715	3.29	%				$	6,539	3.33	%


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, 2004 and 2003, and the year ended December 31, 2003, respectively. The effect of this adjustment is presented below.

Investment securities	$	111,113		$	3,097	3.72	%	$	117,758		$	4,333	3.68	%	$	115,911		$	3,202	3.69	%
Loans		150,725			7,474	6.62	%		137,826			9,720	7.05	%		136,562			7,391	7.24	%

Total earning assets	$	269,678		$	10,642	5.27	%	$	265,108		$	14,169	5.34	%	$	262,268		$	10,685	5.45	%

Taxable equivalent net yield on earning assets				$	7,488	3.71	%				$	9,565	3.61	%				$	7,184	3.66	%

Table Three Average Balance Sheets and Interest Rate Analysis

(dollars 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, 2004 and 2003. Average balance sheet information for the periods ended September 30, 2004 and 2003 was compiled using the daily average balance sheet. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. 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, 2004 and 2003.


	(Unaudited) September 30, 2004							(Unaudited) September 30, 2003
	Average Volume			Interest		Average Rate		Average Volume			Interest		Average Rate
ASSETS:
Investment securities:
U.S. Treasury and other U. S. Government agencies	$	46,065		$	358	3.09	%	$	47,979		$	338	2.79	%
Mortgage backed securities		39,196			336	3.41	%		46,151			292	2.51	%
Obligations of states and political subdivisions		21,241			196	3.67	%		22,279			194	3.45	%
Other securities		4,279			51	4.74	%		6,682			83	4.93	%

Total Investment securities:		110,781			941	3.38	%		123,091			907	2.92	%
Interest bearing deposits		546			2	1.46	%		1,569			4	1.01	%
Federal funds sold		5,534			20	1.44	%		7,493			17	0.90	%
Loans, net of unearned income		152,314			2,461	6.43	%		138,128			2,377	6.83	%
Other earning assets		926			5	2.15	%		881			7	3.15	%

Total earning assets		270,101			3,429	5.05	%		271,162			3,312	4.85	%
Cash and due from banks		6,292							6,591
Bank premises and equipment		3,896							3,981
Other assets		8,206							5,153
Allowance for loan losses		(2,265	)						(2,133	)

Total Assets	$	286,230						$	284,754

LIABILITIES
Time deposits	$	86,385		$	676	3.11	%	$	93,239		$	796	3.39	%
Savings deposits		89,916			231	1.02	%		88,352			233	1.05	%
Interest bearing demand deposits		39,707			37	0.37	%		38,368			42	0.43	%
Federal funds purchased and repurchase agreements		17,719			76	1.71	%		13,961			55	1.56	%
FHLB borrowings		2,441			29	4.73	%		115			1	3.45	%

Total interest bearing liabilities		236,168			1,049	1.77	%		234,035			1,127	1.91	%
Demand deposits		25,318							26,973
Other liabilities		1,572							1,634

Total Liabilities		263,058							262,642
STOCKHOLDERS’ EQUITY		23,172							22,112

Total Liabilities and Stockholders’ Equity	$	286,230						$	284,754

Net yield on earning assets				$	2,380	3.51	%				$	2,185	3.20	%


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, 2004 and 2003, respectively. The effect of this adjustment is presented below.

Investment securities	$	110,781		$	1,060	3.81	%	$	123,091		$	1,028	3.31	%
Loans		152,314			2,569	6.71	%		138,128			2,477	7.11	%

Total earning assets	$	270,101		$	3,656	5.38	%	$	271,162		$	3,533	5.17	%

Taxable equivalent net yield on earning assets				$	2,607	3.84	%				$	2,406	3.52	%

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 decreased $9,475,060 or 8.0% from December 31, 2003 to September 30, 2004. The decline in investment securities was primarily used in part to fund the additional loan growth.

The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investments. Taxable securities comprised 81.3% of total securities at September 30, 2004, as compared to 84.5% at December 31, 2003. 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 Company does not have any high risk hybrid/derivative instruments.

Investment securities that are classified available for sale are available for sale at any time based upon management’s assessment of changes in economic or financial market conditions. These securities are carried at fair value and the unrealized holding gains and losses, net of taxes, are reflected as a separate component of stockholder’s equity until realized. Available for sale securities, at fair value decreased $8,861,832 or 7.7% from December 31, 2003, and represented 96.9% of the investment portfolio at September 30, 2004. The decrease was primarily due to maturities and calls of U.S. Treasury and U.S. Government corporation and agency securities and corporate debt securities offset in part by the purchase of obligations of states and political subdivisions. The held to maturity securities decreased $613,228 or 15.4% from December 31, 2003 and represented 3.1% of the investment portfolio as of September 30, 2004. The decrease was primarily the result of maturities and calls of 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 $661,760 at September 30, 2004 and increased by $997,588 at December 31, 2003. The fair value of securities classified as held to maturity was above book value by $139,771 and $210,275 at September 30, 2004 and December 31, 2003, respectively.

Table Four - Investment Portfolio

The following table presents the book values of investment securities (in thousands):


	(Unaudited)
	September 30, 2004		December 31, 2003
Securities held to maturity:
Obligations of States & Political Subdivisions	$	3,362	$	3,976

Total held to maturity	$	3,362	$	3,976

Securities available for sale:
U.S. Treasury securities and obligations of U.S. Government corporations and Agencies	$	46,272	$	56,644
Obligations of States & Political Subdivisions		18,603		15,432
Corporate Debt Securities		2,885		3,987
Mortgage-Backed Securities		38,025		38,616
Equity Securities		623		590

Total available for sale	$	106,408	$	115,269

Total	$	109,770	$	119,245

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Investments - Continued

Table Five - Maturity distribution of Investment Portfolio

(dollars in thousands)

The maturity distribution using book value including accretion of discounts and amortization of premiums and approximate yield of investment securities at September 30, 2004 and December 31, 2003 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.


	(Unaudited)
	September 30, 2004								December 31, 2003
	Securities Held to Maturity				Securities Available for Sale				Securities Held to Maturity				Securities Available for Sale
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
U.S. Treasury and other U.S. Government Agencies
Within One Year	$	—	—	%	$	5,556	2.50	%	$	—	—	%	$	3,440	3.41	%
After One But
Within Five Years		—	—			33,052	3.01			—	—			42,111	2.73
After Five But
Within Ten Years		—	—			7,432	4.17			—	—			10,731	4.03
After Ten Years		—	—			232	1.87			—	—			362	1.62

		—	—			46,272	3.13			—	—			56,644	3.01

States & Political Subdivisions
Within One Year		15	8.13			1,680	4.34			15	7.97			2,152	3.54
After One But
Within Five Years		3,070	6.42			6,689	4.39			2,857	6.13			6,054	4.44
After Five But
Within Ten Years		277	6.59			7,980	5.10			1,104	6.46			6,607	4.93
After Ten Years		—	—			2,254	5.99			—	—			619	3.01

		3,362	6.44			18,603	4.88			3,976	6.23			15,432	4.47

Corporate Debt Securities
Within One Year		—	—			1,834	6.22			—	—			1,000	2.60
After One But
Within Five Years		—	—			1,051	5.68			—	—			2,987	5.85

		—	—			2,885	6.02			—	—			3,987	5.03
Mortgage-Backed Securities		—	—			38,025	3.86			—	—			38,616	3.91
Equity Securities		—	—			623	2.18			—	—			590	2.02

Total	$	3,362	6.44	%	$	106,408	3.77	%	$	3,976	6.23	%	$	115,269	3.57	%

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Loans

Loans represent the largest asset on the Company’s balance sheet. Total loans, net of unearned income, increased $8,922,919 or 6.1% from December 31, 2003 to September 30, 2004. The growth in the loan portfolio in the first nine months of 2004 was primarily due to the increase in commercial loans and other loans.

Real estate residential loans which include real estate construction, real estate farmland, and real estate residential loans comprised thirty-four percent (34%) of the loan portfolio. Commercial loans which include real estate secured by non-farm, non-residential and commercial and industrial loans comprised forty-four percent (44%) of the loan portfolio. Installment loans comprised twelve percent (12%) of the loan portfolio. Other loans which include non-rated industrial development obligations, direct financing leases and other loans comprised ten percent (10%) of the loan portfolio. The changes in the composition of the loan portfolio since December 31, 2003 were a 1% increase in commercial loans, a 2% increase in other loans, a 2% decrease in real estate residential loans and a 1% decrease in installment loans.

Table Six - Loan Portfolio

Loans outstanding are as follows (in thousands):


	(Unaudited)
	September 30, 2004		December 31, 2003
Real Estate - residential:
Real Estate - construction	$	2,131	$	1,932
Real Estate - farmland		266		315
Real Estate - residential		50,706		50,732

	$	53,103	$	52,979

Commercial:
Real Estate-secured by nonfarm nonresidential	$	51,648	$	44,692
Commercial and industrial		17,387		18,460

	$	69,035	$	63,152

Installment:
Installment and other loans to individuals	$	18,749	$	18,887

Other:
Nonrated industrial development obligations	$	14,809	$	11,847
Other loans		149		22

	$	14,958	$	11,869

Total		155,845		146,887
Less unearned interest		212		176

	$	155,633	$	146,711

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

(dollars in thousands)

The following table presents the contractual maturities of loans other than installment loans and residential mortgages as of September 30, 2004 and December 31, 2003:


	(Unaudited) September 30, 2004						December 31, 2003
	In one Year or Less		After one Year Through Five Years		After Five Years		In one Year or Less		After one Year Through Five Years		After Five Years
Real estate construction	$	396	$	1,096	$	639	$	640	$	1,172	$	120
Commercial real estate - secured by nonfarm, nonresidential property		1,402		2,057		48,189		974		2,543		41,175
Commercial and industrial		1,368		7,350		8,669		1,691		8,206		8,563
Nonrated industrial development obligations		1,608		3,891		9,310		1,474		2,877		7,496

Total	$	4,774	$	14,394	$	66,807	$	4,779	$	14,798	$	57,354


The following table presents an analysis of fixed and variable rate loans as of September 30, 2004 and December 31, 2003 along with the contractual maturities of loans other than installment loans and residential mortgages:

	(Unaudited) September 30, 2004						December 31, 2003
	In one Year or Less		After one Year Through Five Years		After Five Years		In one Year or Less		After one Year Through Five Years		After Five Years
Fixed Rates	$	3,063	$	8,888	$	12,719	$	3,449	$	8,057	$	12,435
Variable Rates		1,711		5,506		54,088		1,330		6,741		44,919

Total	$	4,774	$	14,394	$	66,807	$	4,779	$	14,798	$	57,354

Non-performing assets include non-accrual loans on which the collectibility of the full amount of interest is uncertain; loans which have been renegotiated to provide for a reduction or deferral of interest on principal because of a deterioration in the financial position of the borrower; loans past due ninety days or more as to principal or interest; and other real estate owned. A summary of nonperforming assets is presented in Table Eight.

Total non-performing loans were $1,383,000 at September 30, 2004 as compared to $2,169,000 at December 31, 2003. The decrease in non-performing loans was primarily due to the payoff of a non-accrual commercial loan during the third quarter of 2004. Loans past due 90 days or more and still accruing interest were $16,000 at September 30, 2004, as compared to $58,000 at December 31, 2003.

Loans are placed in non-accrual when the principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection. Non-accrual loans were at .8% of total loans outstanding as of September 30, 2004, as compared to 1.4% of total loans at December 31, 2003. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Loans - Continued

Table Eight - Risk Elements

(dollars in thousands)

Loans which are in the process of collection, but are contractually past due 90 days or more as to interest or principal, renegotiated, non-accrual loans and other real estate are as follows:


	(Unaudited) September 30,						December 31, 2003
	2004			2003			December 31, 2003
Past Due 90 Days or More:
Real Estate - residential	$	—		$	54		$	52
Commercial		—			2			—
Installment		16			7			6

	$	16		$	63		$	58

Non-accrual:
Real Estate - residential	$	4		$	—		$	12
Commercial		1,169			1,190			2,052
Installment		10			25			35

	$	1,183		$	1,215		$	2,099

Other Real Estate	$	184		$	—		$	12

Total non-performing assets	$	1,383		$	1,278		$	2,169

Total non-performing assets to total loans and other real estate		0.89	%		0.92	%		1.48	%

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 $77,100, $51,700 and $173,500 for the periods ended September 30, 2004, September 30, 2003 and December 31, 2003, respectively. As of September 30, 2004, 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.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Table Nine

Analysis of Allowance for Possible Loan Losses

(dollars in thousands)

The following table presents a summary of loans charged off and recoveries of loans previously charged off by type of loan.


	(Unaudited) September 30,						December 31, 2003
	2004			2003			December 31, 2003
Allowance for loan losses:
Balance at beginning of period:	$	2,305		$	2,027		$	2,027

Loans Charged Off:
Real Estate - residential		3			13			13
Commercial		229			53			77
Installment		65			54			76

		297			120			166

Recoveries:
Real Estate - residential		17			3			3
Commercial		14			—			—
Installment		14			5			6

		45			8			9

Net Charge-offs		252			112			157

Additions Charged to Operations		210			210			435

Balance at end of period:	$	2,263		$	2,125		$	2,305

Average Loans Outstanding	$	150,725		$	136,562		$	137,826

Ratio of net charge-offs to Average loans outstanding for the period		0.17	%		0.08	%		0.11	%

Ratio of the Allowance for Loan Losses to Loans Outstanding for the period		1.45	%		1.53	%		1.57	%

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.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Allowance for Loan Losses

In all lending activities there is an inherent risk that borrowers will be unable to repay their obligations. The Company maintains an allowance for loan losses to absorb probable loan losses. The Company has historically maintained the allowance for loan losses at a level greater than actual charge-offs. Although a subjective evaluation is determined by management, the Company 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 Company’s market area could result in new estimates which could affect the Company’s earnings. Management monitors the quality of the loan portfolio 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 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.

The allowance for loan losses decreased $41,710 or 1.8%, since December 31, 2003. The allowance for loan losses represented 1.5% of outstanding loans as of September 30, 2004 and December 31, 2003. Net loan charge-offs were $251,710 for the nine month period ended September 30, 2004, compared to $157,037 in 2003. The net loan charge-offs during the first nine months of 2004 were primarily commercial and consumer loans. The provision for possible loan losses was $210,000 for both nine month periods ended September 30, 2004 and 2003. The credit quality of the loan portfolio combined with the recent level of net charge-offs and nonperforming assets continue to be considered in the calculation of the provision for loan losses. The Company has allocated the allowance for possible loan losses to specific portfolio segments based upon historical net charge-off experience, changes in the level of nonperforming assets, local economic conditions and management’s experience as presented in Table Ten.

Table Ten

Loan Portfolio - Allocation of allowance for possible loan losses

(dollars in thousands)

The following table presents an allocation of the allowance for possible loan losses at each of the four year periods ended December 31, 2003, and the nine month period ended September 30, 2004. 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.

December 31,

September 30,

2004

2003

2002

2001

2000

Amount

Percent
of loans
in each
category
to total
loans

Amount

Percent
of loans
in each
category
to total
loans

Amount

Percent
of loans
in each
category
to total
loans

Amount

Percent
of loans
in each
category
to total
loans

Amount

Percent
of loans
in each
category
to total
loans

Real estate - residential

325

34.1

311

36.0

276

37.5

263

37.3

241

37.9

Commercial

1,424

44.3

1,429

43.0

1,161

41.7

821

40.0

549

37.0

Installment

493

12.0

544

12.9

569

12.9

541

16.1

492

20.9

Others

9.6

8.1

7.9

6.6

4.2

Total

2,263

100.0

2,305

100.0

2,027

100.0

1,646

100.0

1,302

100.0

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Deposits

A stable core deposit base is the major source of funds for the Company’s subsidiary bank. The deposit mix depends upon many factors including competition from other financial institutions, depositor interest in certain types of deposits, changes in the interest rate and the Company’s need for certain types of deposit growth. Total deposits were $240,731,727 at September 30, 2004 as compared to $241,947,330 at December 31, 2003, a decrease of .5%. Since year end the decline in deposits was primarily in time deposits, offset in part by increases in noninterest bearing and interest bearing demand deposits and savings deposits. Time deposits decreased $4,736,375 or 5.2% during the nine month period of 2004. At September 30, 2004, noninterest bearing deposits comprised 11% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 89% of total deposits. The change in the deposit mix from December 31, 2003 to September 30, 2004 was a 1% increase in noninterest bearing deposits and a 1% decrease in interest bearing deposits.

Table Eleven

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. (Expressed in thousands)


	Maturities of Time Deposits in Excess of $100,000
	(Unaudited) September 30, 2004		December 31, 2003
Three Months or Less	$	3,359	$	3,327
Over Three and Less than Six Months		1,248		8,283
Over Six and Less than Twelve Months		5,182		3,819
Over Twelve Months		9,940		9,047

Total	$	19,729	$	24,476

Federal Funds Purchased and Repurchase Agreements

Federal funds purchased and repurchase agreements are short-term borrowings. There were no Federal funds purchased at September 30, 2004. Federal funds purchased were $800,000 as of December 31, 2003. Repurchase agreements increased $5,464,105 or 38.2%, from $14,288,834 at December 31, 2003 to $19,752,939 at September 30, 2004. The balance of repurchase agreements increased primarily due to the addition of one new commercial customer.

Federal Home Loan Bank Borrowings

Federal Home Loan Bank (“FHLB”) borrowings were $2,434,871 at September 30, 2004 compared to $2,463,464 at December 31, 2003 with an interest rate of 4.76%. The FHLB borrowings are collateralized by a blanket collateral agreement which assigns a security interest in capital stock, deposits, mortgage loans, securities and FHLB stock of the subsidiary bank. The borrowings will mature in 2018. The FHLB funding was utilized to mitigate the impact of rising interest rates for a long term fixed rate loan commitment.

Other Assets and Other Liabilities

Changes in other assets and liabilities were primarily the result of trade date accounting on investment securities purchases and sales. At December 31, 2003, other assets were increased by approximately $3.7 million due to sales of investment securities. At September 30, 2004, other liabilities were increased by approximately $997,000 due to purchases of investment securities.

First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and

Results of Holding Company Operations

Capital Resources

Stockholders’ equity increased 4.9% during the nine month period ended September 30, 2004 entirely from current earnings after quarterly dividends, and decreased .9% resulting from the effect of the change in the net unrealized loss on securities available for sale. Stockholders’ equity amounted to 8.3% of total assets at September 30, 2004 as compared to 8.1% at December 31, 2003.

The Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. 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 bank has 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, 2004, and December 31, 2003:


Ratio	Minimum		September 30, 2004		December 31, 2003
Leverage Ratio	3.0	%	7.2	%	6.9	%
Risk Based Capital
Tier 1 (core)	4.0	%	11.6	%	11.3	%
Tier 2 (total)	8.0	%	12.8	%	12.5	%

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 Holding Company had investment securities with an estimated fair value of $106,407,520 classified as available for sale at September 30, 2004. 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 Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Membership in the FHLB provides an additional source of funding, in the form of collateralized advances. At September 30, 2004, the subsidiary bank had a short term line of credit available with the FHLB in the aggregate amount of approximately $7 million. There were no short term borrowings outstanding pursuant to this agreement as of September 30, 2004.

At September 30, 2004 and December 31, 2003, the Company had outstanding loan commitments and unused lines of credit totaling $19,573,000 and $28,034,000, respectively. As of September 30, 2004, management placed a high probability for required funding within one year of approximately $14.0 million. Approximately $4.6 million is principally unused home equity and credit card lines on which management places a low probability for required funding.

FIRST WEST VIRGINIA BANCORP, INC.

PART I

Item 3 Quantitative and Qualitative Disclosures About Market Risk

The Company’s subsidiary bank uses 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 bank provides 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 bank at September 30, 2004 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 6.8%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 10.7%. The Asset Liability committee believes that a 200 basis point decline in interest rates is unlikely to occur, and have determined that a 100 basis point instantaneous change may be more realistic. Therefore, the results using a +/-100 basis point interest rate scenario are presented. Under the 100 basis point increase scenario net interest income would be reduced by approximately 3.0%, and given a 100 basis point decrease scenario net interest income would be reduced by 1.8%. The projections provided by the model are not intended as an actual forecast of the bank’s performance in a particular rate environment, and should not be relied upon. Actual changes in the interest rate environment normally do not take place instantaneously, but over a period of time, and do not occur in a parallel fashion. Additionally, the balance sheet composition, spread relationships for new dollars invested, non interest income and expenses, investment practices, and deposit practices all change as a result of changes in interest rates and would need to be considered by the Asset Liability committee.

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

During the quarter, the Company’s subsidiary bank adopted a control procedure to ensure that loans are documented and closed in accordance with any terms and conditions set forth by the Board of Directors in granting their approval.

There were no other 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.

FIRST WEST VIRGINIA BANCORP, INC.

PART II

OTHER INFORMATION

Item 1 Legal Proceedings

The nature of the business of the Holding Company’s subsidiary 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 its subsidiary is a party or of which any of their property is subject.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

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) Reports on Form 8-K

On August 4, 2004 a report on Form 8-K was filed which contained a press release dated August 3, 2004 that reported the earnings of First West Virginia Bancorp, Inc. for the second quarter ended June 30, 2004.

(b) Exhibits

The exhibits listed in the Exhibit Index on page 30 of this FORM 10-Q are incorporated by reference and/or filed herewith.

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 10, 2004

EXHIBIT INDEX

The following exhibits are filed herewith and/or are incorporated herein by reference.


Exhibit Number		Description
3.1		Certificate and Articles of Incorporation of First West Virginia Bancorp, Inc. Incorporated herein by reference.

3.2		Bylaws of First West Virginia Bancorp, Inc. Incorporated herein by reference.

10.1		Employment Contract dated December 23, 2002 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		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.

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

31		Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Executive Officer pursuant to section 302 of the Securities and Exchange Act of 1934. Filed herewith and incorporated herein by reference.

31.1		Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Financial Officer pursuant to section 302 of the Securities and Exchange Act of 1934. Filed herewith and incorporated herein by reference.

32		Certification pursuant to 18 U.S.C. §1350,as adopted pursuant to section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith and incorporated herein by reference.

99.1		Independent Accountant’s Report. Filed herewith and incorporated herein by reference.

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