Exhibit 13.1

P.O. Box 6671

Wheeling, WV 26003

TO OUR SHAREHOLDERS:

I am pleased for the opportunity to present you with the financial performance contained in the 2009 Annual Report of First West Virginia Bancorp, Inc. Consolidated net income for 2009 was $2,304,986 or $1.45 per share, an increase of $99,475 or 4.5% as compared to $2,205,511 or $1.39 per share a year earlier. Total assets for the Holding Company increased 5.0% over the prior year to $271,130,609 at December 31, 2009 as compared to $258,163,637 at December 31, 2008. Total stockholders’ equity increased 7.2% to $30,806,237 as compared to $28,736,558 reported in 2008. The book value per share was $19.38 at December 31, 2009 as compared to $18.08 a year earlier.

The Board of Directors declared and paid cash dividends of $.76 and $.74 per share during 2009 and 2008, respectively, after adjustment for the four percent (4%) common stock dividend paid to shareholders of record October 1, 2008.

In 2009, James C. Inman, Jr. retired from our Company’s Board of Directors. Jim served as a director of our Company, as well as a director of our subsidiary, Progressive Bank, N.A. since 1993 upon the completion of our merger with the former Wellsburg Banking & Trust Company. Jim will remain an emeritus director of our Progressive Bank, N.A. subsidiary Board of Directors.

The year 2009 continued to extremely challenge the banking industry as a whole. Several banks failed for various reasons. Present economic conditions are not conducive to operating and maintaining the necessary viability of any bank practicing mundane banking philosophies and obsolete marketing strategies.

Fortunately, our management team is operating with an unobscured vision and absolute passion to insure the success of our organization.

We are encouraged with the overall performance of our entire staff, as well as inspired with the support of our shareholders, and while being fully persuaded, we are following the philosophies, policies and strategies established by our Board of Directors.

We anticipate the year 2010 will once again result in outstanding performance of our institution.

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

 

		December 31,
		2009				2008
ASSETS
Cash and due from banks		$	4,714,371			$	5,992,400
Due from banks - interest bearing			1,569,418				360,334
Federal funds sold			7,070,000				2,748,000
Total cash and cash equivalents			13,353,789				9,100,734
Investment securities:
Available-for-sale (at fair value)			115,997,044				112,046,054
Held-to-maturity (fair value of $-0- and $323,716, respectively)			-				320,256
Loans			128,581,422				124,634,785
Less allowance for loan losses			(1,894,361	)			(1,923,455	)
Net loans			126,687,061				122,711,330
Premises and equipment, net			4,798,975				4,713,897
Accrued income receivable			1,203,635				1,252,753
Goodwill			1,644,119				1,644,119
Bank owned life insurance			3,310,587				3,553,984
Other assets			4,135,399				2,820,510
Total assets		$	271,130,609			$	258,163,637
LIABILITIES
Noninterest bearing deposits:
Demand		$	26,580,001			$	24,108,459
Interest bearing deposits:
Demand			40,589,903				33,782,737
Savings			67,556,655				55,716,792
Time			86,519,438				92,777,279
Total deposits			221,245,997				206,385,267
Federal funds purchased and securities sold under agreements to repurchase			11,025,432				11,013,195
Federal Home Loan Bank borrowings			7,354,309				10,929,369
Accrued interest payable			404,449				566,590
Other liabilities			294,185				532,658
Total liabilities			240,324,372				229,427,079
STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,599,411 shares issued at December 31, 2009 and December 31, 2008			7,997,055				7,997,055
Treasury stock - 10,000 shares at cost:			(228,100	)			(228,100	)
Surplus			5,609,357				5,609,357
Retained earnings			15,589,770				14,492,736
Accumulated other comprehensive income			1,838,155				865,510
Total stockholders’ equity			30,806,237				28,736,558
Total liabilities and stockholders’ equity		$	271,130,609			$	258,163,637

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME

 

		Year Ended December 31,
		2009			2008			2007
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable		$	7,251,907		$	7,359,632		$	7,686,362
Tax-exempt			527,344			557,718			586,511
Debt securities:
Taxable			4,173,960			4,593,200			4,179,638
Tax-exempt			943,965			741,684			839,066
Dividends			-			37,238			43,511
Other interest income			15,938			83,895			99,192
Federal funds sold			728			140,714			274,216
Total interest and dividend income			12,913,842			13,514,081			13,708,496
INTEREST EXPENSE
Deposits			3,731,052			4,587,865			4,680,090
Federal funds purchased and repurchase agreements			127,979			172,899			485,978
FHLB and other long-term borrowings			469,068			514,452			265,432
Total interest expense			4,328,099			5,275,216			5,431,500
Net interest income			8,585,743			8,238,865			8,276,996
PROVISION FOR LOAN LOSSES			183,942			-			(100,000	)
Net interest income after provision for loan losses			8,401,801			8,238,865			8,376,996
NONINTEREST INCOME
Service charges and other fees			702,529			812,516			930,563
Net gains (losses) on available for sale securities			188,517			109,909			(22,255	)
Other operating income			899,957			565,483			502,170
Total noninterest income			1,791,003			1,487,908			1,410,478
NONINTEREST EXPENSE
Salary and employee benefits			3,684,089			3,668,387			3,833,170
Net occupancy expense of premises			1,272,483			1,235,117			1,105,406
Other operating expenses			2,635,509			2,105,266			2,333,668
Total noninterest expense			7,592,081			7,008,770			7,272,244
Income before income taxes			2,600,723			2,718,003			2,515,230
INCOME TAXES			295,737			512,492			479,268
Net income		$	2,304,986		$	2,205,511		$	2,035,962
WEIGHTED AVERAGE SHARES OUTSTANDING			1,589,411			1,589,411			1,589,411
EARNINGS PER COMMON SHARE		$	1.45		$	1.39		$	1.28
DIVIDENDS PER COMMON SHARE		$	0.76		$	0.74		$	0.73

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

																		Accumulated Other Comprehensive Income (loss)
																						Comprehensive Income			Total
										Retained Earnings				Treasury Stock
		Common Stock
		Shares		Amount			Surplus
BALANCE, DECEMBER 31, 2006		1,538,443		$	7,692,215		$	4,982,606		$	13,520,264			$	(228,100	)		$	(690,031	)					$	25,276,954
Comprehensive income:
Net income		-			-			-			2,035,962				-				-			$	2,035,962			2,035,962
Other comprehensive income, net of tax
Unrealized gain on securities net of reclassification adjustment (see disclosure)		-			-			-			-				-				1,063,299				1,063,299			1,063,299
Comprehensive income																						$	3,099,261
Cash dividend ($.73 per share)		-			-			-			(1,161,616	)			-				-							(1,161,616	)
BALANCE, DECEMBER 31, 2007		1,538,443			7,692,215			4,982,606			14,394,610				(228,100	)			373,268							27,214,599
Comprehensive income:
Net income		-			-			-			2,205,511				-				-			$	2,205,511			2,205,511
Other comprehensive income, net of tax
Unrealized gain on securities net of reclassification adjustment (see disclosure)		-			-			-			-				-				492,242				492,242			492,242
Comprehensive income																						$	2,697,753
Cash dividend ($.74 per share)		-			-			-			(1,173,201	)			-				-							(1,173,201	)
Cash Paid in Lieu of fractional shares on stock dividend		-			-			-			(2,593	)			-				-							(2,593	)
4% Common Stock Dividend at Par Value		60,968			304,840			626,751			(931,591	)			-				-							-
BALANCE, DECEMBER 31, 2008		1,599,411			7,997,055			5,609,357			14,492,736				(228,100	)			865,510							28,736,558
Comprehensive income:
Net income		-			-			-			2,304,986				-				-			$	2,304,986			2,304,986
Other comprehensive income, net of tax
Unrealized gain on securities net of reclassification adjustment (see disclosure)		-			-			-			-				-				972,645				972,645			972,645
Comprehensive income																						$	3,277,631
Cash dividend ($.76 per share)		-			-			-			(1,207,952	)			-				-							(1,207,952	)
BALANCE, DECEMBER 31, 2009		1,599,411		$	7,997,055		$	5,609,357		$	15,589,770			$	(228,100	)		$	1,838,155						$	30,806,237

 

		2009			2008			2007
Disclsosure of reclassification amount:
Unrealized holding gains arising during the period		$	1,090,223		$	560,792		$	1,049,418
Less reclassification adjustment for gains (losses) included in net income			117,578			68,550			(13,881	)
Net unrealized gains on securities		$	972,645		$	492,242		$	1,063,299

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Year Ended December 31,
		2009				2008				2007
OPERATING ACTIVITIES
Net income		$	2,304,986			$	2,205,511			$	2,035,962
Adjustments to reconcile net income to net cash provided by operating activities:
Increase (decrease) in Provision for loan losses			183,942				-				(100,000	)
Depreciation and amortization			444,208				443,270				408,215
Accretion of investment securities, net			(68,440	)			(231,842	)			(230,694	)
Investment security (gains) losses			(188,517	)			(109,909	)			22,255
Loss on disposal of assets			-				3,257				14,836
Decrease (increase) in cash surrender value of bank-owned life insurance			243,397				(124,424	)			(121,849	)
Decrease (increase) in interest receivable			49,118				(16,600	)			27,182
Decrease (increase) in interest payable			(162,141	)			(31,464	)			597
Other, net			(2,140,193	)			(533,727	)			(158,011	)
Net cash provided by operating activities			666,360				1,604,072				1,898,493
INVESTING ACTIVITIES
Net increase in loans, net of charge-offs			(4,177,926	)			(3,089,128	)			(1,195,854	)
Proceeds from sales of securities available-for-sale			11,355,204				7,068,208				9,427,941
Proceeds from maturities of securities available-for-sale			38,661,874				169,987,509				226,195,913
Proceeds from maturities of securities held-to-maturity			321,000				345,000				310,000
Principal collected on mortgage-backed securities			14,399,406				9,971,164				8,787,745
Purchases of securities available-for-sale			(66,551,785	)			(191,960,149	)			(238,561,158	)
Recoveries on loans previously charged-off			18,253				73,993				12,020
Purchases of premises and equipment			(529,286	)			(355,685	)			(790,116	)
Net cash provided by (used in) investing activities			(6,503,260	)			(7,959,088	)			4,186,491
FINANCING ACTIVITIES
Net increase (decrease) in deposits			14,860,730				3,258,436				(7,281,584	)
Dividends paid			(1,207,952	)			(1,175,794	)			(1,161,616	)
Increase (decrease) in short-term borrowings			12,237				(1,182,949	)			(3,044,014	)
Proceeds from FHLB borrowings			-				1,690,000				7,000,000
Repayment of FHLB borrowings			(3,575,060	)			(59,123	)			(44,226	)
Net cash provided by (used in) financing activities			10,089,955				2,530,570				(4,531,440	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			4,253,055				(3,824,446	)			1,553,544
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			9,100,734				12,925,180				11,371,636
CASH AND CASH EQUIVALENTS, END OF YEAR		$	13,353,789			$	9,100,734			$	12,925,180
Supplemental Disclosures:
Cash Paid for Interest		$	4,490,240			$	5,306,680			$	5,430,903
Cash Paid for Income Taxes			453,853				886,000				370,000

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows.

Nature of Operations and Basis of Presentation: First West Virginia Bancorp, Inc. (the “Company”) is a West Virginia Company. The Company provides a variety of banking services to individuals and businesses through the branch network of its affiliate bank (the “Bank”). The Bank operates nine full service branches located in Wheeling (3), Wellsburg, Moundsville, New Martinsville, Buckhannon, and Weston, West Virginia and Bellaire, Ohio. Primary deposit products consist of checking accounts, savings accounts, and certificates of deposit. Primary lending products consist of commercial and residential real estate loans, consumer loans, and business loans.

Principles of Consolidation: The consolidated financial statements of the Company include the financial statements of the parent and its wholly-owned subsidiary, Progressive Bank, N.A. All significant intercompany transactions and accounts have been eliminated in consolidation.

Subsequent Events: The Company assessed events occurring subsequent to December 31, 2009 through March 4, 2010 for potential recognition and disclosure in the consolidated financial statements. No events were identified that would require adjustment to or disclosure in the financial statements.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

Cash and cash equivalents: Cash and cash equivalents consist of cash on hand and amounts due from banks and federal funds sold.

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.

Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its market value, and management’s intent and ability to hold the security for a period of time sufficient to allow for a recovery in market value. Among the factors that are considered in determining management’s intent and ability is a review of the Company’s capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and management’s intent and ability requires considerable judgment. A decline in value that is considered to be other-than-temporary is recorded as a loss within noninterest income in the Consolidated Statement of Income. At December 31, 2009, 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.

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.

Loans and Loans Held for Sale: Loans are generally reported at the principal balance outstanding, net of unearned income. Interest income on loans is accrued based on the principal outstanding. It is the Company’s policy to discontinue the accrual of interest when 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. It is the Company’s policy not to recognize interest income on specific impaired loans unless the likelihood of future loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the contractual life of the related loans or commitments as an adjustment of the related loan’s yield. Loans held for sale are carried at the lower of cost or estimated market value in the aggregate. There were no loans held for sale as of December 31, 2009 and 2008, respectively.

The Company has entered into an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) under which the bank may sell conforming one-to-four family residential mortgage loans to the FHLB. The agreement provides for a maximum commitment of $5,000,000. Loans sold to the FHLB are sold with limited recourse or credit risk up to a maximum amount of $125,000 based upon utilization of the original commitment. The bank also maintains the servicing of these loans, for which it is paid a servicing fee. The total amount of loans sold under this agreement were $3,820,570 and $1,817,036 as of December 31, 2009 and 2008, respectively. These loans were also subject to recourse obligation or credit risk in the amount of $108,068 and $43,043 at December 31, 2009 and 2008, respectively. The amount of income recognized as of a result of this agreement was $22,616, $7,821 and $8,848 for the years ending December 31, 2009, 2008 and 2007, respectively.

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses: The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses that is charged to operations. The provision is based on management’s evaluation of the adequacy of the allowance for loan losses which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant changes in the near term.

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.

Impaired loans are 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.

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 $1,894,361 at December 31, 2009, 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.

Goodwill and Other Intangible Assets Goodwill resulted from the Company’s purchase of a less-than-whole financial institution (the “branch”). The goodwill value of $1.6 million 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.

An identifiable intangible asset resulted from the purchase of the core deposits of another financial institution in 2001 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). The Company recognized amortization expense of $-0-, $14,792 and $88,751 in the periods ending December 31, 2009, 2008 and 2007. The unamortized balance from the purchase of these core deposit intangible assets is $-0- at December 31, 2009 and 2008, respectively. While management feels the assumptions and variables used to value the acquisition were reasonable, the use of different, but still reasonable, assumptions could produce different results.

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.

Bank-owned Life Insurance: Bank owned life insurance consists of investments in life insurance policies on executive officers and other members of the bank’s management. The policies are carried at their net cash surrender value. Changes in the policy value are recorded as an adjustment to the carrying value with the corresponding amount recognized as non-interest income or expense. Earnings on these policies are based on the net earnings on the cash surrender value of the policies. The net cash surrender value of bank-owned life insurance was $3,310,587 and $3,553,984 at December 31, 2009 and 2008, respectively. The face value of the bank-owned life insurance at December 31, 2009 was $8.7 million. An agreement has been executed with all officers whereby a $40,000 death benefit is payable upon the participant’s death while employed by the Company to their designated beneficiary

Advertising Costs: Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $160,961, $92,709 and $258,861 for 2009, 2008, and 2007, respectively.

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed generally using the straight-line method over the estimated useful lives of the assets. When units of property are disposed of, the premises and equipment accounts are relieved of the cost and the accumulated depreciation related to such units. Any resulting gains or losses are credited to or charged against income. Cost of repairs and maintenance is charged to expense as incurred. Additions and improvements are capitalized at cost.

Other Real Estate Owned: Other real estate owned are carried at the lower of cost or their estimated current fair value, less estimated costs to sell and are included in other assets. Other real estate owned consist primarily of properties acquired through, or in lieu of foreclosures. Any subsequent declines in fair value, and gains or losses on the disposition of these assets are credited to or charged against income.

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.

Earnings Per Common Share: Earnings per common share are calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the year. The Company has no securities which would be considered potential common stock.

Stock Dividend: On May 13, 2008, the Company declared a 4% stock dividend to stockholders of record on October 1, 2008. All common share data includes the effect of the stock dividend.

Comprehensive Income: The Company is required to present comprehensive income in a full set of general-purpose financial statements for all periods presented. Other comprehensive income comprises unrealized holding gains (losses) on the available-for-sale securities portfolio. The Company has elected to report the effects of other comprehensive income as part of the Consolidated Statement of Changes in Stockholders’ Equity. The following table represents other comprehensive income before tax and net of tax:

 

		2009				2008				2007
Before-tax amount		$	1,559,476			$	789,228			$	1,704,824
Tax effect			(586,831	)			(296,986	)			(641,525	)
Net of tax effect			972,645				492,242				1,063,299
Net income as reported			2,304,986				2,205,511				2,035,962
Total comprehensive income		$	3,277,631			$	2,697,753			$	3,099,261

Recent Accounting Pronouncements: In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-01, Topic 105—Generally Accepted Accounting Principles - FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company adopted this standard for the interim reporting period ending September 30, 2009.

In April 2009, the FASB issued new guidance impacting ASC Topic 820, Fair Value Measurements and Disclosures. This ASC provides additional guidance in determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of this new guidance did not have a material effect on the Company’s results of operations or financial position.

In September 2006, the FASB issued an accounting standard related to fair value measurements, which was effective for the Company on January 1, 2008. This standard defined fair value, established a framework for measuring fair value, and expanded disclosure requirements about fair value measurements. On January 1, 2008 , the provisions of this accounting standard became effective for the Company’s financial assets and financial liabilities and on January 1, 2009 for nonfinancial assets and nonfinancial liabilities. This accounting standard was subsequently codified into ASC Topic 820, Fair Value Measurements and Disclosures. See Note 20 for the necessary disclosures.

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value. This ASU provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance or fourth quarter 2009. The Company is currently evaluating the impact of this standard on the Company’s financial condition, results of operations, and disclosures.

 

8

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In April 2009, the FASB issued new guidance impacting ASC 825-10-50, Financial Instruments, which relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. This guidance amended existing GAAP to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance is effective for interim and annual periods ending after June 15, 2009. The Company has presented the necessary disclosures in Note 21 herein.

In April 2009, the FASB issued new guidance impacting ASC 320-10, Investments — Debt and Equity Securities, which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This guidance is effective for interim and annual periods ending after June 15, 2009. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations.

In June 2009, the FASB issued an accounting standard related to the accounting for transfers of financial assets, which is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. This standard enhances reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. This standard eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. This standard also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. This accounting standard was subsequently codified into ASC Topic 860, Transfers and Servicing. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

The FASB issued new authoritative accounting guidance under ASC Topic 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (I) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 is effective for periods ending after June 15, 2009. The required disclosures are provided in Note 1.

On April 1, 2009, the FASB issued new authoritative accounting guidance under ASC Topic 805, Business Combinations, which became effective for periods beginning after December 15, 2008. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, Contingencies. Under ASC Topic 805, the requirements of ASC Topic 420, Exit or Disposal Cost Obligations, would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, Contingencies. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations.

In June 2009, the FASB issued new authoritative accounting guidance under ASC Topic 810, Consolidation, which amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

 

9

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at December 31, 2009 and 2008:

 

		(Expressed in thousands) December 31, 2009
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
Securities held-to-maturity:
Obligations of states and political subdivisions		$	-		$	-		$	-			$	-
Total held-to-maturity			-			-			-				-
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies			26,477			66			(109	)			26,434
Obligations of states and political subdivisions			28,201			893			(53	)			29,041
Mortgage-backed securities			58,133			2,168			(18	)			60,283
Equity securities			239			6			(6	)			239
Total available-for-sale			113,050			3,133			(186	)			115,997
Total		$	113,050		$	3,133		$	(186	)		$	115,997
		(Expressed in thousands) December 31, 2008
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
Securities held-to-maturity:
Obligations of states and political subdivisions		$	320		$	4		$	-			$	324
Total held-to-maturity			320			4			-				324
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies			26,760			174			(46	)			26,888
Obligations of states and political subdivisions			18,798			72			(347	)			18,523
Corporate debt securities			1,504			-			(182	)			1,322
Mortgage-backed securities			63,300			1,816			(40	)			65,076
Equity securities			296			2			(61	)			237
Total available-for-sale			110,658			2,064			(676	)			112,046
Total		$	110,978		$	2,068		$	(676	)		$	112,370

The Company’s investment securities portfolio contains unrealized losses of direct obligations of the U.S. Government agency securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, and debt obligations of a U.S. state or political subdivision.

On a monthly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio unless the company has the ability to hold the security to maturity without incurring a loss. Generally, impairment is considered other than temporary when an investment security has sustained a decline in market value of ten percent or more for a period of six months. The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the noncollection of principal and interest during the period. There are 19 positions that are temporarily impaired at December 31, 2009.

The amortized cost and estimated fair value of investment securities at December 31, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

10

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at December 31, 2009 and 2008:

 

		(Expressed in thousands)
		2009
		Less than Twelve Months							Twelve Months or Greater							Total
		Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses
U.S. Government corporations and agencies		$	14,783		$	(109	)		$	-		$	-			$	14,783		$	(109	)
Obligations of states and political subdivisions			483			(9	)			1,007			(44	)			1,490			(53	)
Mortgage-backed securities			5,309			(15	)			314			(3	)			5,623			(18	)
Total debt securities			20,575			(133	)			1,321			(47	)			21,896			(180	)
Equity securities			-			-				61			(6	)			61			(6	)
Total		$	20,575		$	(133	)		$	1,382		$	(53	)		$	21,957		$	(186	)
		(Expressed in thousands)
		2008
		Less than Twelve Months							Twelve Months or Greater							Total
		Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses				Fair Value			Gross Unrealized Losses
U.S. Government corporations and agencies		$	3,471		$	(46	)		$	-		$	-			$	3,471		$	(46	)
Obligations of states and political subdivisions			11,730			(347	)			-			-				11,730			(347	)
Corporate debt securities			1,322			(182	)			-			-				1,322			(182	)
Mortgage-backed securities			2,638			(17	)			490			(23	)			3,128			(40	)
Total debt securities			19,161			(592	)			490			(23	)			19,651			(615	)
Equity securities			104			(28	)			52			(33	)			156			(61	)
Total		$	19,265		$	(620	)		$	542		$	(56	)		$	19,807		$	(676	)

The amortized cost and fair value of investment securities at December 31, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

		(Expressed in thousands)
		Securities Held-to-Maturity						Securities Available-for-Sale
		Amortized Cost			Fair Value			Amortized Cost			Fair Value
Due in one year or less		$	-		$	-		$	1,290		$	1,302
Due after one year through five years			-			-			22,849			22,990
Due after five years through ten years			-			-			11,264			11,351
Due after ten years			-			-			19,275			19,832
			-			-			54,678			55,475
Mortgage-backed securities			-			-			58,133			60,283
Equity securities			-			-			239			239
Total		$	-		$	-		$	113,050		$	115,997

Proceeds from sales of securities available-for-sale during the years ended December 31, 2009, 2008, and 2007, were $11,355,204, $7,068,208, and $9,427,941 respectively. Gross gains of $298,319 and gross losses of $109,802 in 2009; gross gains of $114,687 and gross losses of $4,778 in 2008; and gross gains of $39,762 and gross losses of $62,017 in 2007, were realized on those sales. Assets carried at $28,959,000 and $34,199,000 at December 31, 2009 and 2008, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

 

11

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 3 - LOANS AND LEASES

Loans outstanding at December 31, 2009 and 2008, are as follows:

 

		(Expressed in Thousands)
		2009			2008
Real estate - construction		$	605		$	711
Real estate - farmland			278			295
Real estate - residential			44,675			43,792
Real estate-secured by non-farm, non-residential			49,335			43,914
Commercial and industrial loans			9,029			9,649
Installment and other loans to individuals			13,168			14,086
Non-rated industrial development obligations			11,632			12,342
Other loans			22			42
Total		$	128,744		$	124,831
Less unearned interest and deferred fees			163			196
Net loans		$	128,581		$	124,635

Non-accrual loans amounted to $4,091,733 and $3,275,190 at December 31, 2009 and 2008, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $249,470, $214,000 and $156,500 for 2009, 2008 and 2007, respectively.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is summarized as follows:

 

		December 31,
		2009			2008			2007
Balance at beginning of year		$	1,923,455		$	2,042,997		$	2,296,958
Additions (deletions) charged to operating expense			183,942			-			(100,000	)
Recoveries			18,253			73,993			12,020
Total			2,125,650			2,116,990			2,208,978
Less loans charged-off			231,289			193,535			165,981
Balance at end of year		$	1,894,361		$	1,923,455		$	2,042,997
The following is a summary of information pertaining to impaired and non-accrual loans:
		(Expressed in Thousands)
		December 31,
		2009			2008			2007
Impaired loans without a valuation allowance		$	4,075		$	2,121		$	1,143
Impaired loans with a valuation allowance			17			1,154			1,294
Total impaired loans		$	4,092		$	3,275		$	2,437
Valuation allowance related to impaired loans		$	10		$	349		$	270
		(Expressed in Thousands) December 31,
		2009			2008			2007
Total non-accrual loans		$	4,092		$	3,275		$	2,437
Total loans past-due 90 days or more and still accruing		$	-		$	-		$	26
		(Expressed in Thousands) December 31,
		2009			2008			2007
Average investment in impaired loans		$	3,648		$	2,796		$	3,173
Interest income recognized on impaired loans			-			-			-
Interest income recognized on a cash basis on impaired loans			-			-			-

No additional funds are committed to be advanced in connection with impaired loans.

 

12

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation, as follows:

 

		December 31,						Original Useful Life Years
		2009			2008
Land		$	1,983,014		$	1,983,014
Land improvements			218,005			218,005		20
Leasehold improvements			404,598			404,598		25
Buildings			4,724,160			4,483,963		20-50
Furniture, fixtures & equipment			4,329,048			4,039,959		3 - 8
Total			11,658,825			11,129,539
Less accumulated depreciation			6,859,850			6,415,642
Premises and equipment, net		$	4,798,975		$	4,713,897

Charges to operations for depreciation approximated $444,208, $428,478, and $319,464 for 2009, 2008, and 2007, respectively.

NOTE 6 - DEPOSITS

The composition of the Bank’s deposits at December 31 follows:

 

		(Expressed in Thousands) 2009
		Demand
		Noninterest Bearing			Interest Bearing			Savings			Time
Individuals, partnerships and corporations (includes certified and official checks)		$	26,073		$	34,537		$	64,833		$	84,557
United States Government			54			-			-			-
States and political subdivisions			451			6,053			2,724			1,712
Commercial banks and other depository institutions			2			-			-			250
Total		$	26,580		$	40,590		$	67,557		$	86,519

 

		(Expressed in Thousands) 2008
		Demand
		Noninterest Bearing			Interest Bearing			Savings			Time
Individuals, partnerships and corporations (includes certified and official checks)		$	23,132		$	28,534		$	54,897		$	89,682
United States Government			42			-			-			-
States and political subdivisions			932			5,249			820			2,945
Commercial banks and other depository institutions			2			-			-			150
Total		$	24,108		$	33,783		$	55,717		$	92,777

Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $23,781,000 and $25,790,000 at December 31, 2009 and 2008, respectively. Interest expense on certificates of deposit of $100,000 or more was $888,000, $1,119,000 and $1,178,000 at December 31, 2009, 2008, and 2007, respectively.

A maturity distribution of time certificates of deposit at December 31, 2009, follows:

 

Due in 2010		$	57,681,000
Due in 2011			13,728,000
Due in 2012			7,891,000
Due in 2013			3,553,000
Due in 2014			3,659,000
Due in 2015 and thereafter			7,000
Total		$	86,519,000

 

13

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 7 - FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS

Federal funds purchased and repurchase agreements represent borrowings of a short duration, usually less than 30 days. For repurchase agreements, the securities underlying the agreements remained under the Bank’s control. Information related to repurchase agreements and federal funds purchased are summarized below:

 

		Repurchase Agreements								Federal Funds Purchased
		2009				2008				2009			2008
Balance at end of year		$	11,025,432			$	11,013,195			$	-		$	-
Average balance during the year			12,623,346				12,090,079				-			-
Maximum month-end balance			14,282,435				12,858,391				-			-
Weighted-average rate during the year			1.01	%			1.43	%			-			-
Rate at December 31			.93	%			1.14	%			-			-

NOTE 8 - FEDERAL HOME LOAN BANK BORROWINGS

The subsidiary Bank is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). The FHLB borrowings are secured by a blanket lien by the FHLB on certain residential real estate loans or securities with a market value at least equal to the outstanding balances. The remaining maximum borrowing capacity with the FHLB at December 31, 2009 was approximately $47.6 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $7,354,309 and $10,929,369 at December 31, 2009 and 2008, respectively. The decrease in FHLB borrowings was due to the maturity of one fixed rate bullet advance which totaled $3,500,000 during the third quarter of 2009. At December 31, 2009 the subsidiary bank had three fixed rate amortizing advances which totaled $3,854,309 with a weighted average interest rate of 4.78% of which $2,203,480 will mature in 2018 and $1,650,829 will mature in 2023. The subsidiary bank also had one fixed rate bullet advance which totaled $3,500,000. This advance carries an interest rate of 5.09% and will mature in 2010.

The subsidiary bank also has a one year line of credit agreement with the Federal Home Loan Bank (“FHLB”). The maximum credit available under this agreement is $7.0 million and expires December 2011. There were no borrowings outstanding under this agreement at December 31, 2009 and 2008, respectively.

Contractual maturities of FHLB borrowings as of December 31, 2009 were as follows:

 

December 31, 2010		$	3,578,725
December 31, 2011			82,570
December 31, 2012			86,602
December 31, 2013			90,832
December 31, 2014			95,267
Thereafter			3,420,313
		$	7,354,309

NOTE 9 - OTHER BORROWINGS

The Company has a non-revolving line of credit of $3.0 million from a financial institution. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjustable quarterly. The note matures in May 2015. The Company’s initial borrowing under the loan amounted to $2.0 million. There were no outstanding borrowings as of December 31, 2009 and as of December 31, 2008.

NOTE 10 - CONCENTRATIONS OF CREDIT RISK

Most of the affiliate Bank’s loans and commitments have been granted to customers in the Bank’s primary market area of Northern and Central West Virginia, Eastern Ohio, and Southwestern Pennsylvania. In the normal course of business, however, the Bank has purchased participations and originated loans outside of its primary market area. The aggregate loan balances outstanding in any one geographic area, other than the Bank’s primary lending areas, do not exceed 10 percent of total loans. Concentrations of credit are measured by categorizing loans by the North American Industry Classification codes. Loans equal to or exceeding 25% of Tier I Capital are considered concentrations of credit. At December 31, 2009 concentrations of credit were as follows:

 

		Amount			Percent of Tier 1 Capital
Lessors of Nonresidential Buildings		$	14,986,243		55.4%
Lessors of Residential Buildings and Dwellings		$	13,148,838		48.6%
General Government Support		$	7,594,994		28.1%

 

14

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company has a non-contributory profit sharing plan for employees meeting certain service requirements. The Company makes annual contributions to the profit sharing plan based on income of the Company as defined. Total expenses for the plan were $63,000, $100,000, and $92,700 for the years ended December 31, 2009, 2008, and 2007, respectively.

The Company also offers a 401(k) plan in which it matches a portion of the employee’s contribution up to 4 percent of their salary. The expense related to the 401(k) plan was $22,628, $22,508, and $22,365 in 2009, 2008, and 2007, respectively.

NOTE 12 - RELATED PARTY TRANSACTIONS

Directors and officers of the Company and its subsidiary, and their associates, were customers of, and had other transactions with the subsidiary bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility. Such loans totaled $2,626,186 at December 31, 2009, and $3,142,008 at December 31, 2008.

The following is an analysis of loan activity to directors, executive officers, and associates of the Company and its subsidiary:

 

		December 31,
		2009				2008
Balance, January 1		$	3,142,008			$	2,745,649
New loans during the period			3,260				1,389,588
Repayments during the period			(519,082	)			(993,229	)
Ending balance		$	2,626,186			$	3,142,008

The Company’s subsidiary bank entered into a lease agreement to rent property for use as banking premises from a company owned by Mr. Dlesk, the Company’s executive officer. The lease was for an initial 5 year term at an annual rental fee of $57,600, This lease was renewed in 2007 for an additional 5-year term at an annual rental fee of $60,480 and has options to renew for seven 5-year terms.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The subsidiary Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The following represents financial instruments whose contract amounts represent credit risk:

 

		2009			2008
Commitments to extend credit		$	12,407,000		$	18,831,000
Standby letters of credit			90,000			142,000

As of December 31, 2009, approximately $8,093,000 are fixed interest rate commitments and $4,404,000 are variable interest rate commitments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The standby letters of credit in the amount of $5,000 expire in 2010, $15,000 in 2012 and $70,000 in 2015. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company and its subsidiary are parties to various legal and administrative proceedings and claims. Although any litigation contains an element of uncertainty, management believes that the outcome of these events will not have a material effect on the financial position of the Company.

 

15

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 14 - RESTRICTION ON CASH

The subsidiary bank is required to maintain an average reserve balance with the Federal Reserve Bank or in cash on hand. The average required reserve balances for the years ended December 31, 2009 and 2008, were $2,636,000 and $2,494,000, respectively.

NOTE 15 - INCOME TAX

The provisions for income taxes at December 31 consist of:

 

		2009				2008				2007
Currently payable:
Federal		$	246,711			$	452,088			$	368,217
State			80,837				95,453				105,452
Deferred:
Federal			(37,922	)			(52,362	)			(1,516	)
State			6,111				17,313				7,115
Income tax expense		$	295,737			$	512,492			$	479,268

The following temporary differences gave rise to the deferred tax asset at December 31:

 

		2009				2008
Allowance for loan losses		$	722,789			$	684,031
Deferred loan fees			55,496				66,623
Accrued interest on nonperforming loans			371,080				304,640
Deferred compensation			85,931				106,490
Depreciation			(41,390	)			18,551
Amortization			86,838				100,920
Goodwill			(111,800	)			(74,534	)
AMT			240,182				222,513
Deferred state income tax			(64,290	)			(66,370	)
Total deferred tax asset - federal			1,344,836				1,362,864
Total deferred tax asset - state			189,094				195,205
			1,533,930				1,558,069
Deferred tax assets arising from market adjustments of securities available for sale:
Federal			(946,928	)			(445,868	)
State			(162,095	)			(76,324	)
Net deferred tax assets		$	424,907			$	1,035,877

A reconciliation between the amount of reported income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the year ended December 31 is as follows:

 

		2009					2008					2007
		Amount			Percent		Amount			Percent		Amount			Percent
Computed tax at statutory federal rate		$	884,246		34.0%		$	924,121		34.0%		$	855,179		34.0%
Plus state income taxes net of federal tax benefits			55,872		2.2%			84,135		3.1%			67,538		2.7%
			940,118		36.2%			1,008,256		37.1%			922,717		36.7%
Increase (decrease) in taxes resulting from:
Tax exempt income			(497,619)		(19.1)%			(441,202)		(16.2)%			(483,880)		(19.2)%
Nondeductible interest expense			38,797		1.5%			43,622		1.6%			50,946		2.0%
Bank-owned life insurance			(155,372)		(6.0)%			(42,304)		(1.6)%			(41,429)		(1.7)%
Other - net			(30,187)		(2.0)%			(55,880)		(2.0)%			30,914		1.2%
Actual tax expense		$	295,737		10.6%		$	512,492		18.9%		$	479,268		19.0%

 

16

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 16 - LEASES

The Company’s Bank affiliates leased certain land used for banking purposes under long-term leases, expiring at various dates. These leases contain renewal options and generally provide that the Company will pay for insurance, taxes, and maintenance.

As of December 31, 2009, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:

 

December 31, 2010		$	238,524
December 31, 2011			227,003
December 31, 2012			149,963
December 31, 2013			113,862
December 31, 2014			82,500
Thereafter			-

Rental expense under operating leases approximated $191,497 in 2009; $180,665 in 2008; and $190,509 in 2007.

NOTE 17 - OTHER OPERATING EXPENSES

Other operating expenses at December 31 included the following:

 

		2009			2008			2007
Directors’ fees		$	104,325		$	126,250		$	132,350
Stationery and supplies			142,894			215,249			135,929
Regulatory assessment and deposit insurance			583,189			108,253			106,421
Advertising			160,961			92,709			258,861
Postage and transportation			167,842			169,669			187,289
Other taxes			186,910			183,117			187,693
Service Expense			384,489			416,890			434,452
Other			904,899			793,129			890,673
Total		$	2,635,509		$	2,105,266		$	2,333,668

NOTE 18 - LIMITATIONS ON DIVIDENDS

The approval of the Comptroller of the Currency is required to pay dividends if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits (as defined) for the year, combined with its retained net profits of the preceding two years. Under this formula, the Company’s subsidiary bank can declare dividends in 2010, without approval of the Comptroller of the Currency, of approximately $2,179,000, plus an additional amount equal to the bank’s net profit for 2010 up to the date of any such dividend declaration. The subsidiary bank is the primary source of funds to pay dividends to the stockholders of First West Virginia Bancorp, Inc.

NOTE 19 - REGULATORY MATTERS

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk, weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to adjusted total assets (as defined).

As of December 31, 2009, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes has changed the capital category. The capital ratios of the Company and its subsidiary bank, along with the regulatory framework for adequately capitalized and well capitalized institutions are depicted as set forth in the following table:

 

17

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 19 - REGULATORY MATTERS (CONTINUED)

 

(Amounts Expressed in Thousands)		Actual					For Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
First West Virginia Bancorp, Inc.		Amount			Ratio		Amount			Ratio		Amount			Ratio
As of December 31, 2009
Total Capital (to Risk Weighted Assets)		$	29,217		19.11%		$	12,230		8.0%		$	15,288		10.0%
Tier I Capital (to Risk Weighted Assets)			27,323		17.87%			6,115		4.0%			9,173		6.0%
Tier I Capital (to Adjusted Total Assets)			27,323		10.25%			10,660		4.0%			13,325		5.0%
As of December 31, 2008
Total Capital (to Risk Weighted Assets)		$	28,045		18.86%		$	11,897		8.0%		$	14,871		10.0%
Tier I Capital (to Risk Weighted Assets)			26,191		17.61%			5,949		4.0%			8,923		6.0%
Tier I Capital (to Adjusted Total Assets)			26,191		10.14%			10,334		4.0%			12,917		5.0%
Progressive Bank, N.A.
As of December 31, 2009
Total Capital (to Risk Weighted Assets)		$	28,934		18.97%		$	12,202		8.0%		$	15,253		10.0%
Tier I Capital (to Risk Weighted Assets)			27,040		17.73%			6,101		4.0%			9,152		6.0%
Tier I Capital (to Adjusted Total Assets)			27,040		10.17%			10,640		4.0%			13,300		5.0%
As of December 31, 2008
Total Capital (to Risk Weighted Assets)		$	27,788		18.74%		$	11,861		8.0%		$	14,826		10.0%
Tier I Capital (to Risk Weighted Assets)			25,934		17.49%			5,930		4.0%			8,895		6.0%
Tier I Capital (to Adjusted Total Assets)			25,934		10.06%			10,316		4.0%			12,895		5.0%

NOTE 20 - FAIR VALUE MEASUREMENTS

Effective in 2008, the Company adopted accounting guidance, which, among other things, required enhanced disclosures about assets and liabilities carried at fair value. This guidance establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined under the literature are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

As of December 31, 2009, the Company did not have any assets measured at fair value on a nonrecurring basis. The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. As of December 31, 2008, all of the financial assets measured at fair value utilized the market approach.

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of December 31, 2009 and 2008 by level within the fair value hierarchy. As required by the current accounting guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

		December 31, 2009
		Level I			Level II			Level III			Total
		(In thousands)
Assets:
Securities available for sale		$	252		$	115,745		$	—		$	115,997
Impaired loans		$	—		$	3,896		$	—		$	3,896

 

18

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 20 - FAIR VALUE MEASUREMENTS (CONTINUED)

 

		December 31, 2008
		Level I			Level II			Level III			Total
		(In thousands)
Assets:
Securities available for sale		$	254		$	111,792		$	—		$	112,046
Impaired loans		$	—		$	3,275		$	—		$	3,275

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The reported fair values of financial instruments are based on a variety of factors. Where possible, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Intangible values assigned to customer relationships are not reflected in the reported fair values. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:

Cash and Cash Equivalents: The carrying amount for cash and cash equivalents is a reasonable estimate of fair value.

Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans: The fair value for net loans is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair value.

Bank Owned Life Insurance: The carrying amount of bank owned life insurance represents the cash surrender value of the underlying insurance policies, if such policies were terminated. Management believes that the carrying amount approximates the fair value.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposits: Noninterest bearing and interest bearing demand deposits and savings deposits are valued at the amount payable on demand as of year end. The fair values for time deposits are based on discounted value of cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities.

Federal Funds Purchased and Repurchase Agreements: The carrying amount for federal funds purchased and repurchase agreements are considered to be a reasonable estimate of fair value.

Federal Home Loan Bank and other long term borrowings: The fair value of FHLB and other long term borrowings is based on the interest rates currently charged for borrowings with similar terms and maturities.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates it fair value.

Off-Balance-Sheet Instruments: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The amount of fees currently charged on commitments is determined to be insignificant and, therefore, the carrying value and fair value of off-balance-sheet instruments are not shown.

The estimates of fair values of financial instruments are summarized as follows at December 31:

 

		2009						2008
(Amounts Expressed in Thousands)		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Cash and cash equivalents		$	13,354		$	13,354		$	9,101		$	9,101
Investment securities			115,997			115,997			112,366			112,370
Loans			126,687			126,197			122,712			124,208
Bank owned life insurance			3,311			3,311			3,554			3,554
Accrued interest receivable			1,204			1,204			1,253			1,253
Financial liabilities:
Deposits			221,246			200,282			206,385			208,345
Federal funds purchased and repurchase agreements			11,025			11,025			11,013			11,013
FHLB and other long term borrowings			7,354			7,354			10,930			10,930
Accrued interest payable			404			404			566			566

 

19

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 22 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

Presented below are the condensed statements of financial condition, statements of income, and statements of cash flows for First West Virginia Bancorp, Inc.

BALANCE SHEETS

 

		December 31,
		2009			2008
ASSETS
Cash		$	154,647		$	118,794
Investment securities available-for-sale (at fair value)			252,067			254,180
Investment in subsidiary bank			30,522,846			28,479,818
Other assets			134,966			204,171
Total assets		$	31,064,526		$	29,056,963
LIABILITIES
Deferred compensation		$	252,739		$	313,205
Accrued expenses			5,550			7,200
Total liabilities			258,289			320,405
STOCKHOLDERS’ EQUITY			30,806,237			28,736,558
Total liabilities and stockholders’ equity		$	31,064,526		$	29,056,963

STATEMENTS OF INCOME

 

		Year Ended December 31,
		2009				2008				2007
INCOME
Dividends from subsidiary bank		$	1,211,520			$	1,173,660			$	1,161,040
Gains (losses) on sales of investment securities			(29,960	)			(2,803	)			939
Other income			124,132				131,278				137,517
Total income			1,305,692				1,302,135				1,299,496
EXPENSES
Salary and employee benefits			-				14,797				24,809
Interest expense			-				159				-
Other expenses			124,352				168,790				165,355
Total expenses			124,352				183,746				190,164
Income before income taxes and undistributed net income of subsidiary			1,181,340				1,118,389				1,109,332
Income tax benefit			16,868				15,098				17,864
Equity in undistributed net income of subsidiary			1,106,778				1,072,024				908,766
NET INCOME		$	2,304,986			$	2,205,511			$	2,035,962

 

20

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009, 2008, AND 2007

 

 

NOTE 22 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CASH FLOWS

 

		Year Ended December 31,
		2009				2008				2007
OPERATING ACTIVITIES
Net income		$	2,304,986			$	2,205,511			$	2,035,962
Adjustments to reconcile net income to net cash provided by operating activities:
Change in deferred tax benefit			22,752				12,750				8,070
Undistributed earnings of affiliate			(1,106,778	)			(1,072,024	)			(908,766	)
Changes in operating assets and liabilities:
Other assets			24,495				(32,257	)			(7,958	)
Deferred compensation			(60,466	)			(33,882	)			(22,475	)
Other liabilities			(1,650	)			3,600				—
Net gains (losses) on sales of investment securities			29,960				2,803				(939	)
Net cash provided by operating activities			1,213,299				1,086,501				1,103,894
INVESTING ACTIVITIES
Proceeds from sales of securities			150,914				147,060				118,743
Purchases of investment securities			(120,408	)			(116,277	)			(96,061	)
Net cash provided by investing activities			30,506				30,783				22,682
FINANCING ACTIVITIES
Dividends paid			(1,207,952	)			(1,175,794	)			(1,161,616	)
Net cash used in financing activities			(1,207,952	)			(1,175,794	)			(1,161,616	)
Net increase (decrease) in cash and cash equivalents			35,853				(58,510	)			(35,040	)
Cash and cash equivalents at beginning of year			118,794				177,304				212,344
Cash and cash equivalents at end of year		$	154,647			$	118,794			$	177,304
Supplemental disclosures:
Cash paid for interest		$	-			$	159			$	-
Cash paid for income taxes			-				-				-

 

21

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for the preparation and fair presentation of the consolidated financial statements and the related financial information included in this annual report. The financial statements and the information related to those statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report reliable financial data. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the Company’s internal control over financial reporting is effective, management is required to evaluate, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and did so most recently for its financial reporting as of December 31, 2009. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting was based on criteria for effective internal control over financial reporting described in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, management has concluded theat the internal control over financial reporting was effective as of December 31, 2009. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of the independent auditor and approves decisions regarding the appointment or removal of the Company’s Internal Auditor. It meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company’s financial reports. The independent auditors and the internal auditor have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2009 and 2008, and the results of its operations, and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to examine management’s assertion about the effectiveness of First West Virginia Bancorp, Inc’s internal control over financial reporting as of December 31, 2009, which is included in Form 10-K and, accordingly, we do not express an opinion thereon.

 

/s/ S.R. Snodgrass, A.C.

Wheeling, West Virginia

March 4, 2010

S.R. Snodgrass, A.C.

980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile: 304-233-3062

 

22

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Table One

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)

 

 

 

		December 31,
		2009				2008				2007				2006				2005
SUMMARY OF OPERATIONS
Total interest income		$	12,914			$	13,514			$	13,708			$	13,772			$	13,128
Total interest expense			4,328				5,275				5,431				4,943				4,070
Net interest income			8,586				8,239				8,277				8,829				9,058
Provision for loan losses			184				-				(100	)			-				180
Total other income			1,791				1,488				1,410				1,433				1,378
Total other expenses			7,592				7,009				7,272				7,614				7,451
Income before income taxes			2,601				2,718				2,515				2,648				2,804
Net income			2,305				2,206				2,036				2,144				2,262
PER SHARE DATA (1)
Net income		$	1.45			$	1.39			$	1.28			$	1.35			$	1.42
Cash dividends declared			0.76				0.74				0.73				0.73				0.73
Book value per share			19.38				18.08				17.12				15.90				15.07
AVERAGE BALANCE SHEET SUMMARY
Total loans, net		$	128,206			$	120,722			$	120,409			$	129,997			$	144,528
Investment securities			112,142				108,114				109,278				109,533				102,882
Deposits - interest bearing			190,981				182,450				182,682				190,160				200,902
Stockholders’ equity			28,192				27,295				26,223				25,416				24,409
Total assets			266,414				258,275				253,930				262,946				270,500
BALANCE SHEET
Investments		$	115,997			$	112,366			$	106,647			$	110,894			$	107,998
Loans			128,581				124,635				121,739				120,709				135,214
Allowance for loan losses			(1,894	)			(1,923	)			(2,043	)			(2,297	)			(2,320	)
Other assets			28,447				23,086				26,844				25,132				25,321
Total Assets		$	271,131			$	258,164			$	253,187			$	254,438			$	266,213
Deposits		$	221,246			$	206,385			$	203,127			$	210,409			$	218,817
Federal funds purchased and repurchase agreements			11,025				11,013				12,196				15,240				19,084
FHLB borrowings			7,354				10,929				9,298				2,343				2,385
Other long-term borrowings			-				-				-				-				1,000
Other liabilities			700				1,100				1,351				1,169				968
Stockholders’ equity			30,806				28,737				27,215				25,277				23,959
Total Liabilities and Stockholders’ equity		$	271,131			$	258,164			$	253,187			$	254,438			$	266,213
SELECTED RATIOS
Return on average assets			0.87	%			0.85	%			0.80	%			0.82	%			0.84	%
Return on average equity			8.18	%			8.08	%			7.76	%			8.44	%			9.27	%
Average equity to average assets			10.58	%			10.57	%			10.33	%			9.67	%			9.02	%
Dividend payout ratio (1)			52.41	%			53.24	%			57.03	%			54.07	%			51.41	%
Loan to Deposit ratio			58.12	%			60.39	%			59.93	%			57.37	%			61.79	%

 

(1)	Adjusted for the 4 percent common stock dividend to stockholders of record as of October 1, 2008.

 

23

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First West Virginia Bancorp, Inc.

Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

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 actual 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.

Critical Accounting Policies: The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

    Other Than Temporary Impairment of Equity Securities: Equity securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

    Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.

    Goodwill and Other Intangible Assets: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.

    Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.

OVERVIEW

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 years ended December 31, 2009, 2008 and 2007. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.

The Company reported net income of $2,304,986 or $1.45 per share for the year ended December 31, 2009 as compared to $2,205,511 or $1.39 per share for the year ended December 31, 2008. The increase in net income during 2009 over 2008 of $99,475 or 4.5% was primarily the result of the increases in net interest income and noninterest income combined with the decrease in income tax expense, offset in part by increases in noninterest expenses and the provision for loan losses. Net interest income rose in 2009 as compared to 2008 primarily due to the decline in the interest expense paid on interest bearing liabilities, offset in part by decreases in the interest earned on loans and investment securities. Noninterest income increased $303,095 or 20.4% and was primarily attributable to the increase in the gains on sales of investment securities combined with the increase in other operating income, offset in part by a decrease in service charges and other fee income. Noninterest expenses increased $583,311 or 8.3% in 2009 over 2008 and was primarily due to an increase in other operating expenses which was combined with increases in salary and employee benefit costs and occupancy expenses. During 2009, an increase to the provision for loan losses was made in the amount of $183,942 based upon the reserves required on nonperforming assets and the overall increase in the loan portfolio. The return on average assets was .87% and .85% as of December 31, 2009 and 2008, respectively. The return on average equity was 8.18% and 8.08% at December 31, 2009 and 2008, respectively. The Board of Directors declared and paid cash dividends of $.76 and $.74 per share during 2009 and 2008, respectively.

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.

 

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

Table Two - Average Balance Sheets and Interest Rate Analysis

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 years ended December 31, 2009, 2008, and 2007. Average balance sheet information as of December 31, 2009, 2008, and 2007 was compiled using the daily average balance sheet. Total loans are gross of the allowance for loan losses, net of unearned income and include loans held for sale. Non-accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non-accrual status classification. 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.

 

(dollars in thousands)		December 31, 2009									December 31, 2008									December 31, 2007
		Average Volume			Interest			Average Rate			Average Volume			Interest			Average Rate			Average Volume			Interest			Average Rate
ASSETS:
Investment securities:
U.S. Treasury and U. S Government agencies		$	23,321		$	910		3.90	%		$	23,179		$	1,169		5.04	%		$	31,375		$	1,333		4.25	%
Mortgage backed securities			63,068			3,125		4.96	%			63,200			3,296		5.22	%			54,359			2,776		5.11	%
States and political subdivisions			23,993			989		4.12	%			20,412			797		3.90	%			23,196			887		3.82	%
Other securities			1,760			94		5.34	%			1,323			73		5.52	%			348			23		6.61	%
Total Investment securities:			112,142			5,118		4.56	%			108,114			5,335		4.93	%			109,278			5,019		4.59	%
Interest bearing deposits			1,403			1		0.07	%			3,631			69		1.90	%			1,779			84		4.72	%
Federal funds sold			7,115			1		0.01	%			8,566			141		1.65	%			5,582			274		4.91	%
Loans, net of unearned income			128,206			7,779		6.07	%			120,722			7,917		6.56	%			120,409			8,273		6.87	%
Other earning assets			1,476			15		1.02	%			1,349			52		3.85	%			1,051			58		5.52	%
Total earning assets			250,342			12,914		5.16	%			242,382			13,514		5.58	%			238,099			13,708		5.76	%
Other assets			16,072									15,893									15,831
Total Assets		$	266,414								$	258,275								$	253,930
LIABILITIES
Time deposits		$	92,544		$	3,100		3.35	%		$	94,845		$	3,979		4.20	%		$	95,603		$	4,130		4.32	%
Savings deposits			61,047			499		0.82	%			52,738			458		0.87	%			52,513			415		0.79	%
Interest bearing demand deposits			37,390			132		0.35	%			34,867			151		0.43	%			34,566			135		0.39	%
Federal funds purchased and repurchase agreements			12,623			128		1.01	%			12,090			173		1.43	%			14,086			486		3.45	%
FHLB and other long-term borrowings			9,377			469		5.00	%			10,209			514		5.03	%			5,351			265		4.95	%
Total interest bearing liabilities			212,981			4,328		2.03	%			204,749			5,275		2.58	%			202,119			5,431		2.69	%
Noninterest bearing demand deposits			24,252									24,839									24,321
Other liabilities			989									1,392									1,267
Total Liabilities			238,222									230,980									227,707
STOCKHOLDERS’ EQUITY			28,192									27,295									26,223
Total Liabilities and Stockholders’ Equity		$	266,414								$	258,275								$	253,930
Net yield on earning assets					$	8,586		3.43	%					$	8,239		3.40	%					$	8,277		3.48	%
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 2009, 2008, and 2007, respectively. The effect of this adjustment is presented below.
Investment securities		$	112,142		$	5,747		5.12	%		$	108,114		$	5,829		5.39	%		$	109,278		$	5,578		5.10	%
Loans			128,206			8,131		6.34	%			120,722			8,289		6.87	%			120,409			8,664		7.20	%
Total earning assets		$	250,342		$	13,895		5.55	%		$	242,382		$	14,380		5.93	%		$	238,099		$	14,658		6.16	%
Taxable equivalent net yield on earning assets					$	9,567		3.82	%					$	9,105		3.76	%					$	9,227		3.88	%

 

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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 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 analyze the changes in net interest income for the three years ended December 31, 2009, 2008, and 2007.

Net interest income increased $346,878 or 4.2% in 2009 compared to 2008, and follows a decrease in 2008 of $38,131 or .5% from 2007. During 2009, the increase in net interest income was primarily due to a decline in the interest paid on deposits and repurchase agreements combined with the decrease in the interest paid on other borrowings, offset in part by the decrease in the interest earned on investment securities and loans. The decrease in net interest income in 2008 was primarily due to a decline in the interest earned on loans combined with the increase in the interest paid on other borrowings, offset in part by an increase in the interest earned on investment securities and the decrease in interest paid on deposits and repurchase agreements. 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 3.82% for 2009, as compared to 3.76% and 3.88% earned during 2008 and 2007, respectively.

Interest and fees on loans decreased $138,099 or 1.7% from 2008 to 2009, after decreasing $355,523 or 4.3% from 2007 to 2008. Interest and fees on loans declined in 2009 as compared to 2008 primarily due to the decline in the yield earned on loans which was partially offset by an increase in the average volume of loans. The taxable equivalent yield on loans declined 53 basis points in 2009, from 6.87% in 2008 to 6.34% in 2009, and follows a decrease of 33 basis points in 2008, from 7.20% in 2007 to 6.87% in 2008. The average loan volume increased $7.5 million or 6.2% in 2009 as compared to 2008 after increasing $.3 million or .3% in 2008 as compared to 2007. During 2008 as compared to 2007, the decline in interest and fees on loans was primarily due to the decline in the yield earned on loans which was partially offset by an increase in the average volume of loans.

Interest income on investment securities in 2009 decreased $216,959 or 4.1% over 2008, and follows an increase of $316,180 or 6.3% over 2007. The decrease in the yield earned on investment securities which was partially offset by an increase in the average volume of investment securities contributed to the decrease in interest income on investment securities. The taxable equivalent yield on investment securities fell 27 basis points in 2009, from 5.39% in 2008 to 5.12% in 2009, and follows an increase in 2008 of 29 basis points, from 5.10% in 2007 to 5.39% in 2008. The activity of the investment securities portfolio increased with the average volume increasing $4.0 million or 3.7% in 2009 as compared to 2008, and follows a decrease of $1.2 million or1.1% in 2008 as compared to 2007. In 2008, the increase in the yield earned on investment securities which was partially offset by the decrease in the average volume of investment securities contributed to the increase in interest income on investment securities.

Interest expense in 2009 decreased $947,117 or 18.0% from 2008, compared to the decrease of $156,284 or 2.9% from 2007 to 2008. In 2009, the decline in interest expense was primarily due to the decreases in the yield and the average volume of time deposits and Federal Home Loan Bank and other long term borrowings combined with the decrease in the yield of savings deposits and federal funds purchased and repurchase agreements, offset in part by increases in the average volume of interest bearing demand deposits, savings deposits and federal funds purchased and repurchase agreements. In 2008, the decline in interest expense was primarily due to the decrease in the yield on repurchase agreements and time deposits, offset in part by the increase in the average volume of Federal Home Loan Bank and other long term borrowings, offset in part by increases in the average volume and average yield of savings deposits, and decreases in the average volume of federal funds purchased and repurchase agreements and the increase in the average yield on Federal Home Loan Bank and other long term borrowings. The average yield paid on interest bearing liabilities during 2009 fell 55 basis points, from 2.58% in 2008 to 2.03% in 2009, and follows a decrease in 2008 of 11 basis points, from 2.69% in 2007 to 2.58% in 2008. The average volume of interest bearing liabilities increased $8.2 million or 4.0% in 2009 compared to 2008, after increasing $2.6 million or 1.3% in 2008 as compared to 2007.

Noninterest Income

Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $303,095 or 20.4%, in 2009 as compared to an increase of $77,430 or 5.5% in 2008. The increase in noninterest income in 2009 as compared to 2008 was primarily due to increases in the gains (losses) on sales of investment securities and in other operating income, which was offset in part by a decrease in service charges and other fee income. In 2008, noninterest income primarily increased due to the increase in gains (losses) on sales of investment securities and other operating income which was offset in part by a decrease in service charges and other fee income.

Service charges and other fees represent the major component of noninterest income. These charges are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $109,987 in 2009, down 13.5%, from 2008, as compared to the decrease of 12.7% from 2007 to 2008. The decrease in 2009 was primarily due to a decline in overdraft charges combined with a decrease in service charges on deposit accounts. In 2008 the decrease in service charges and other fees was primarily the result of the following: the decrease in overdraft fees assessed on deposit accounts; a decline in service charges on deposit accounts; and the termination of the bill pay service charges for internet banking customers.

 

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

Table Three - Rate Volume Analysis of Changes in Interest Income and Expense

The effect on interest income and interest expense for the years ended December 31, 2009 and 2008 due to changes in average volume and rate from the prior year, is presented below. The effect of a change in average volume has been determined by applying the average rate to the change in volume. The change in rate has been determined by applying the average volume in the earlier year by the change in rate. The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change in each.

 

(in thousands)		2009 Compared to 2008												2008 Compared to 2007
		Increase (Decrease) Due to Change in:												Increase (Decrease) Due to Change in:
		Average Volume				Rate				Net increase (decrease)				Average Volume				Rate				Net increase (decrease)
INTEREST INCOME FROM:
U.S. Treasury and other U. S. Government agencies		$	7			$	(266	)		$	(259	)		$	(348	)		$	184			$	(164	)
Mortgage backed securities			(7	)			(164	)			(171	)			451				69				520
Obligations of states and political subdivisions			140				52				192				(106	)			16				(90	)
Other securities			24				(3	)			21				64				(14	)			50
Total investment securities			164				(381	)			(217	)			61				255				316
Interest bearing deposits			(42	)			(26	)			(68	)			87				(102	)			(15	)
Federal funds sold			(24	)			(116	)			(140	)			147				(280	)			(133	)
Loans, net of unearned income			491				(629	)			(138	)			22				(378	)			(356	)
Other earning assets			5				(42	)			(37	)			16				(22	)			(6	)
Total interest earned			594				(1,194	)			(600	)			333				(527	)			(194	)
INTEREST EXPENSE ON:
Time deposits			(97	)			(782	)			(879	)			(33	)			(118	)			(151	)
Savings deposits			72				(31	)			41				2				41				43
Interest bearing demand deposits			11				(30	)			(19	)			1				15				16
Federal funds purchased and repurchase agreements			8				(53	)			(45	)			(69	)			(244	)			(313	)
FHLB and other long-term borrowings			(42	)			(3	)			(45	)			241				8				249
Total interest paid			(48	)			(899	)			(947	)			142				(298	)			(156	)
Net interest differential		$	642			$	(295	)		$	347			$	191			$	(229	)		$	(38	)
Presented below is the effect on volume and rate variances of the adjustment of interest income on obligations of states and political subdivisions to the fully taxable equivalent basis using a combined Federal and State corporate income tax rate of 40% for the years ended 2009, 2008, and 2007, respectively.
Investment securities		$	217			$	(299	)		$	(82	)		$	(59	)		$	310			$	251
Loans			514				(672	)			(158	)			22				(397	)			(375	)
Total interest earned		$	670			$	(1,155	)		$	(485	)		$	213			$	(491	)		$	(278	)
Net interest differential		$	718			$	(256	)		$	462			$	71			$	(193	)		$	(122	)

 

27

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

Sales of investment securities by the subsidiary bank are generally limited to the needs established under the liquidity policies. Net gains (losses) on sales of investment securities increased $78,608 in 2009 as compared to 2008. The increase in net gains (losses) on sales of investment securities was primarily attributable to sales of securities available for sale recorded by the Company and its subsidiary bank. During 2009, the Company accounted for securities gains of $298,319 and securities losses of $109,802 which were attributable to sales of securities available for sale. In 2008, the Company accounted for securities gains of $114,687 and securities losses of $4,778 which were attributable to sales of securities available for sale. During 2007, the Company and its subsidiary bank accounted for securities gains of $39,762 and securities losses of $62,017 which were attributable to sales of securities available for sale.

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, credit life commissions, credit card fees and commissions, income earned on bank owned life insurance and various other charges and fees related to normal customer banking relationships. Other operating income increased $334,474 or 59.1% in 2009 as compared to 2008. During 2009, the increase in other operating income was primarily due to a gain on bank owned life insurance, an increase in ATM fees and in the income earned on loans sold to the FHLB, offset in part by a decline in nonrecurring gains on sales of assets, credit card fees, in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, checkbook sales and other miscellaneous income. Other operating income increased $63,313 or 12.6% in 2008 as compared to 2007. During 2008, the increase in other operating income was primarily due to an increase in ATM fees, nonrecurring gains on sales of assets, credit card fees, an increase in the earnings related to the cash surrender value of the bank owned life insurance on its key officers, offset in part by declines in credit life commissions, other miscellaneous income, checkbook sales, and in the income earned on loans sold to the FHLB.

Noninterest Expense

Noninterest expenses are comprised of salaries and employee benefits, net occupancy of premises and other operating expenses. In 2009, noninterest expenses increased $583,311 or 8.3% over 2008, and follows a decrease of $263,474 or 3.6% in 2008 over 2007. The increase in noninterest expense in 2009 as compared to 2008 was primarily due to increases in other operating expenses combined with an increase in occupancy expenses and salary and employee benefits expenses. The decrease in noninterest expense in 2008 as compared to 2007 was primarily due to decreases in salary and employee benefits combined with the decrease in other operating expenses which were offset in part by an increase in occupancy expenses.

The major components of other operating expenses include: stationery and supplies, directors’ fees, service expense, postage and transportation, other taxes, advertising, and regulatory assessments and deposit insurance. Other operating expense increased $530,243 or 25.2%, compared to the same period of the prior year. The increase in other operating expense was primarily due to increases in regulatory assessments, other expenses, advertising expenses and in other taxes, offset in part by decreases in stationary and supplies expense, service expenses, directors fees, and postage and transportation expense. During 2008, other operating expense decreased $228,402, or 9.8%, over 2007 and was primarily due a reduction in advertising expenses combined with decreases in directors fees, postage and transportation expense, and in other taxes, offset in part by increases in stationary and supplies expense, regulatory assessments, service expenses and other expenses.

Occupancy expenses increased $37,366 or 3.0% in 2009 over 2008, and follows an increase of $129,711 or 11.7% in 2008 over 2007. Occupancy expenses increased in 2009 primarily due to increases in furniture and fixtures and building depreciation expenses , utility expense, lease expenses of bank premises, building maintenance expenses, and furniture and fixture expenses, offset in part by a decline in other real estate owned expenses. Occupancy expenses increased in 2008 primarily due to the increased furniture and fixtures depreciation expenses, furniture and fixture expenses and other real estate owned expenses.

Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $15,702 or .4% in 2009 over 2008. The increase in salary and employee benefits expense in 2009 was primarily attributable to normal annual merit adjustments. During 2008, salary and employee benefits decreased $164,783 or 4.3% as compared to the same period in 2007. The decrease in salary and employee benefits expense in 2008 was primarily attributable to the reduction in personnel expenses due to a decrease in the number of full-time equivalent employees combined with the decline in payroll taxes and employee benefit costs, partially offset by an normal annual merit adjustments.

Income Taxes

Income tax expense for the period ended December 31, 2009 was $295,737, a decrease of $216,755 or 42.3% over 2008 as compared to the increase of $33,224 or 6.9% from 2007 to 2008. The decrease in pre-taxable income combined with the increase in tax exempt income primarily contributed to the decrease in income tax expense in 2009. Components of the income tax expense for December 31, 2009 were $211,082 for federal taxes and $84,655 for West Virginia corporate net income taxes. Federal income tax rates and West Virginia corporate net income tax rates were consistent at 34% and 9%, respectively, for the years ended December 31, 2009, 2008 and 2007. Additional information regarding income taxes is contained in Note 15 to the Consolidated financial statements.

For federal income tax purposes, tax-exempt income is based on qualified state, county, and municipal bonds and loans. Tax-exempt income was $1,471,309 in 2009; $1,299,402 in 2008; and $1,425,577 in 2007. The state of West Virginia recognizes tax-exempt income based on the average of certain investments and loans held during the tax reporting period. Nontaxable items included are federal obligations and securities, obligations of West Virginia and West Virginia political subdivisions, investments of loans primarily secured by liens or security agreements on residential property and other real estate in the form of a mobile home, modular home or double-wide located in West Virginia. Nontaxable West Virginia income attributable to the foregoing items was approximately $1,124,000 in 2009; $1,375,000 in 2008; and $1,231,000 in 2007.

 

28

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

 

BALANCE SHEET ANALYSIS

Investments

Investment securities increased $3,630,734 or 3.2% from 2008, and followed an increase in 2008 of $5,719,248 or 5.4% from 2007. The investment portfolio is managed to attempt to achieve an optimum mix of asset quality, liquidity and maximum yield on investment. The investment portfolio consists of U.S. Government agency and corporation securities, obligations of states and political subdivisions, mortgage-backed securities and equity securities. Taxable securities comprised 75.4% of total securities at December 31, 2009, as compared to 84.1% at December 31, 2008. Other than the normal risks inherent in purchasing U.S. Government agency and corporation 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 stockholders’ equity until realized. Available for sale securities, at fair value increased $3,950,990 or 3.5% from 2008, and represented 100% of the investment portfolio at December 31, 2009. The increase in the available for sale securities was primarily due to the purchase of obligations of states and political subdivisions and mortgage backed securities. Investment securities held to maturity are securities purchased with the intent and ability to hold until their maturity. Securities classified as held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. The held to maturity securities decreased $320,256 or 100% from 2008. The decrease in the held to maturity securities was primarily the result of maturities and calls of tax exempt municipal securities. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will affect the carrying value of securities available for sale, adjusted upward or downward and represent temporary adjustments in value. The carrying values of securities available for sale was above book value by $2,947,178 and $1,387,702 at December 31, 2009 and 2008, respectively. There were no securities classified as held to maturity at December 31, 2009. At December 31, 2008 the fair value of securities classified as held to maturity was above book value by $3,460.

Table Four - Investment Portfolio

The maturity distribution using book value including accretion of discounts and amortization of premiums and approximate yield of investment securities at December 31, 2009 and December 31, 2008 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.

 

(dollars in thousands)		December 31, 2009												December 31, 2008
		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		$	-		-	%		$	1,022		4.94	%		$	-		-	%		$	2,066		4.35	%
After One But Within Five Years			-		-				18,097		2.69				-		-				1,591		4.42
After Five But Within Ten Years			-		-				7,311		3.59				-		-				23,228		5.14
After Ten Years			-		-				4		0.88				-		-				3		2.69
			-		-				26,434		3.03				-		-				26,888		5.04
States & Political Subdivisions
Within One Year			-		-				281		6.46				320		7.85				1,456		3.86
After One But Within Five Years			-		-				4,892		5.22				-		-				6,090		5.18
After Five But Within Ten Years			-		-				4,040		5.69				-		-				3,591		5.89
After Ten Years			-		-				19,828		6.41				-		-				7,386		6.12
			-		-				29,041		6.11				320		7.85				18,523		5.59
Corporate Debt Securities
Within One Year			-		-				-		-				-		-				-		-
After One But Within Five Years			-		-				-		-				-		-				1,322		6.74
After Five But Within Ten Years			-		-				-		-				-		-				-		-
After Ten Years			-		-				-		-				-		-				-		-
			-		-				-		-				-		-				1,322		6.74
Mortgage-Backed Securities					-				60,283		4.58				-		-				65,076		5.35
Equity Securities			-		-				239		2.45				-		-				237		5.22
Total		$	-		-	%		$	115,997		4.60	%		$	320		7.85	%		$	112,046		5.33	%

 

29

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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 $3,946,637 or 3.2% from 2008 to 2009. The increase in total loans in 2009 was primarily due to increases in commercial loans and residential real estate loans which increased approximately $4,801,000 and $760,000, respectively, offset in part by decreases in installment loans and other loans of approximately $918,000 and $730,000, respectively. The increase in commercial loans was primarily due to an increase in loans secured by commercial real estate. The increase in residential real estate loans during 2009 was primarily in home equity loans and loans secured by multi-family residential properties. From 2007 to 2008, total loans increased $2,895,592 or 2.4%. The increase in loan volume in 2008 was primarily due to increases in commercial loans and installment loans and other loans which increased approximately $3,334,000, $1,225,000 and $230,000, respectively, offset by a decrease in residential real estate loans of approximately $1,896,000. The increase in commercial loans was primarily in commercial real estate loans and commercial loans. The decrease in residential real estate loans during 2008 was primarily in loans secured by multi-family residential properties.

Real estate residential loans which include real estate construction, real estate farmland, real estate residential loans and multi-family residential properties comprised thirty-five percent (35%) of the loan portfolio. Commercial loans which include real estate secured by non-farm, non-residential properties and commercial and industrial loans comprised forty-six percent (46%) of the loan portfolio. Installment loans comprised ten percent (10%) of the loan portfolio. Other loans which include non-rated industrial development obligations, direct financing leases and other loans comprised nine percent (9%) of the loan portfolio. The changes in the composition of the loan portfolio from 2008 to 2009 were a 3% increase in commercial loans, a 1% decrease in real estate residential loans, a 1% decrease in installment loans and a 1% decrease in other loans. From 2007 to 2008, the changes in the composition of the loan portfolio were a 2% increase in commercial loans and a 2% decrease in real estate residential loans.

Table Five

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 as of December 31, 2009 and 2008:

 

(dollars in thousands)		December 31, 2009									December 31, 2008
		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		$	222		$	249		$	134		$	63		$	400		$	248
Commercial real estate - secured by nonfarm, nonresidential property			687			5,586			43,062			332			4,782			38,800
Commercial and industrial			2,565			3,029			3,435			2,305			2,696			4,648
Nonrated industrial development obligations			869			5,753			5,010			1,324			2,585			8,433
Total		$	4,343		$	14,617		$	51,641		$	4,024		$	10,463		$	52,129

The following table presents an analysis of fixed and variable rate loans as of December 31, 2009 and 2008 along with the contractual maturities of loans other than installment loans and residential mortgages:

 

(dollars in thousands)		December 31, 2009									December 31, 2008
		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		$	2,570		$	10,229		$	7,429		$	2,535		$	8,884		$	6,791
Variable Rates			1,773			4,388			44,212			1,489			1,579			45,338
Total		$	4,343		$	14,617		$	51,641		$	4,024		$	10,463		$	52,129

 

30

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

 

Loans Held for Sale

The Company has entered into an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) under which the bank may sell conforming one-to-four family residential mortgage loans to the FHLB. The agreement provides for a maximum commitment of $5,000,000. Loans sold to the FHLB are sold with limited recourse or credit risk up to a maximum amount of $125,000 based upon utilization of the original commitment. The bank also maintains the servicing of these loans, for which it is paid a servicing fee. The total amount of loans sold under this agreement is $3,820,570 and $1,817,036 as of December 31, 2009 and 2008, respectively. The loans which were sold were also subject to a recourse obligation or credit risk in the amount of $108,068 and $43,043 at December 31, 2009 and 2008, respectively.

Non-performing Loans

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 five-year summary of nonperforming assets is presented in Table Six.

Total non-performing loans were $4,265,000 at December 31, 2009 as compared to $3,283,000 at December 31, 2008. Non-performing loans increased $982,000 in 2009, after increasing $820,000 in 2008. The increase in non-performing loans in 2009 as compared to 2008 was primarily due to increases in non-accrual loans and in other real estate loans.

Table Six - Risk Elements

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:

 

(dollars in thousands)		December 31,
		2009				2008			2007			2006			2005
Past Due 90 Days or More:
Real Estate - residential		$	-			-			-			-			85
Commercial			-			-			14			-			-
Installment			-			-			12			3			5
			-			-			26			3			90
Non-accrual:
Real Estate - residential		$	1,819			939			850			958			64
Commercial			2,254			2,320			1,586			2,409			1,262
Installment			19			16			1			13			41
		$	4,092			3,275			2,437			3,380			1,367
Other Real Estate		$	173			8			-			-			53
Total non-performing assets		$	4,265			3,283			2,463			3,383			1,510
Total non-performing assets to total loans and other real estate			3.31	%		2.63	%		2.02	%		2.80	%		1.12	%

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 $4,092,000 or 3.2% of total loans outstanding as of December 31, 2009, as compared to $3,275,000 or 2.6% of total loans outstanding as of December 31, 2008. Non-accrual loans increased in 2009 over 2008 primarily due to the addition of one commercial loan customer into non-accrual status by the subsidiary bank. Non-accrual loans increased in 2008 over 2007 primarily due to the addition of one commercial loan customer into non-accrual status by the subsidiary bank. Loans past due 90 days or more and still accruing interest were $-0- at December 31, 2009 and 2008. Other real estate owned totaled $173,000 at December 31, 2009. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.

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 on nonaccrual loans had the loans performed in accordance with their original terms was $249,500 and $214,000 for the periods ended December 31, 2009 and 2008, respectively.

 

31

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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. Table Seven presents a five-year summary of the Allowance for 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 $29,094 or 1.5%, between December 31, 2009 and December 31, 2008. The allowance for loan losses represented 1.5% of outstanding loans as of December 31, 2009 and 2008. Net loan charge-offs were $213,036 in 2009, compared to $119,542 in 2008 and $153,961 in 2007. The net loan charge-offs remain within historical ranges. The net loan charge-offs in 2009, 2008 and 2007 were primarily commercial and consumer loans. In 2007, a negative provision in the amount of $100,000 was taken primarily as a result of the payoff of two commercial impaired loans. 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 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. 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 Eight.

Table Seven - Analysis of Allowance for Possible Loan Losses

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

 

(dollars in thousands)		December 31,
		2009				2008				2007				2006				2005
Allowance for loan losses:
Balance at beginning of period:		$	1,923			$	2,043			$	2,297			$	2,320			$	2,356
Loans Charged Off:
Real Estate - residential			-				-				29				-				12
Commercial			165				165				111				18				183
Installment			66				29				26				56				71
			231				194				166				74				266
Recoveries:
Real Estate - residential			-				-				-				-				-
Commercial			11				72				5				36				29
Installment			7				2				7				15				21
			18				74				12				51				50
Net Charge-offs			213				120				154				23				216
Additions Charged to Operations			184				-				(100	)			-				180
Balance at end of period:		$	1,894			$	1,923			$	2,043			$	2,297			$	2,320
Average Loans Outstanding		$	128,206			$	120,722			$	120,409			$	129,997			$	144,528
Ratio of net charge-offs to Average loans outstanding for the period			0.17	%			0.10	%			0.13	%			0.02	%			0.15	%
Ratio of the Allowance for Loan Losses to Loans Outstanding for the period			1.47	%			1.54	%			1.68	%			1.90	%			1.72	%

 

32

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

 

Table Eight

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, 2009. 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.

 

(dollars in thousands)		December 31,
		2009						2008						2007						2006						2005
		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		$	412		35.3	%		$	298		35.8	%		$	298		38.3	%		$	327		35.8	%		$	327		33.4	%
Commercial			1,333		45.4	%			1,184		43.0	%			1,277		41.2	%			1,483		43.3	%			1,465		44.5	%
Installment			79		10.2	%			420		11.3	%			447		10.5	%			466		11.2	%			507		12.3	%
Others			70		9.1	%			21		9.9	%			21		10.0	%			21		9.7	%			21		9.8	%
Total		$	1,894		100.0	%		$	1,923		100.0	%		$	2,043		100.0	%		$	2,297		100.0	%		$	2,320		100.0	%

Deposits

A stable core deposit base is the major source of funds for the Holding 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 increased approximately $14.9 million or 7.2% in 2009. The increase in total deposits was primarily due to the increase in non interest bearing demand deposits, interest bearing demand deposits and savings deposits, offset by the decreases in time deposits. Noninterest bearing demand deposits increased approximately $2.5 million or 10.3%, interest bearing demand deposits increased $6.8 million or 20.2% and savings deposits increased approximately $11.8 million, or 21.3%, during 2009 while time deposits decreased approximately $6.3 million, or 6.8%. The decline in time deposits is primarily a result of deposit customers seeking higher yielding deposit products.

At December 31, 2009, noninterest bearing deposits comprised 12% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 88% of total deposits. There were no changes in the deposit mix from December 31, 2008 to December 31, 2009.

Federal Funds Purchased and Repurchase Agreements

Federal funds purchased and repurchase agreements are short-term borrowings. There were no Federal funds purchased as of December 31, 2009 and 2008. Repurchase agreements increased $12,237 or .1%, from $11,013,195 at December 31, 2008 to $11,025,432 at December 31, 2009. The increase in repurchase agreements in 2009 was primarily due to the increase in the balances maintained by commercial customers.

Federal Home Loan Bank and Other Long-term Borrowings

Federal Home Loan Bank (“FHLB”) borrowings were $7,354,309 and $10,929,369 at December 31, 2009 and 2008, respectively, with an interest rate of 4.93% and 4.97%, respectively. 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 Company maintains a $3 million non-revolving line of credit from a financial institution. The purpose of the line of credit was to provide for the capitalization of the subsidiary Bank. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjusted on a quarterly basis. The line of credit expires in May 2015 and is to be repaid in quarterly interest only payments for the first three years and quarterly principal and interest payments thereafter. The Company’s initial borrowing on the note amounted to $2 million. There were no outstanding borrowings under the line of credit at December 31, 2009 and 2008.

 

33

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

Table Nine Contractual Maturities of Long term Obligations and Operating Leases

The following table presents the contractual maturities of long term obligations and operating leases:

 

(dollars in thousands)		Payments due by period
Contractual Obligations:		< 1 year			1-3 years			3-5 years			> 5 years			Total
Federal Home Loan Bank and other long term borrowings		$	3,579		$	169		$	186		$	3,420		$	7,354
Operating Leases			239			377			196			-			812
		$	3,818		$	546		$	382		$	3,420		$	8,166
Off-Balance Sheet Arrangements   Table Ten Contractual Maturities of Commitments and Contingencies   The following table presents the maturities of commitments and contingencies:
(dollars in thousands)		Amount of Commitment Expiration Per Period
Off-Balance Sheet arrangements:		< 1 year			1-3 years			3-5 years			> 5 years			Total
Commitments to extend credit		$	3,833		$	2,410		$	460		$	5,704		$	12,407
Standby letters of credit			5			15			-			70			90
		$	3,838		$	2,425		$	460		$	5,774		$	12,497

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 Company had investment securities with an estimated fair value of $115,997,044 classified as available for sale at December 31, 2009. These securities are available for sale at any time based upon management’s assessment in order to provide necessary liquidity should the need arise. The fair value of temporarily impaired investment securities that the company has the intent and ability to hold until the anticipated recovery in market value is $21,957,000. In addition, the Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) which provides an additional source of funding in the form of collateralized advances. At December 31, 2009, the subsidiary bank had a short term line of credit in the aggregate amount of approximately $7 million available with the FHLB. There were no short term borrowings outstanding pursuant to this agreement as of December 31, 2009. At December 31, 2009 and 2008, the Company had outstanding loan commitments and unused lines of credit totaling $12,497,000 and $18,973,000, respectively. Management placed a high probability for required funding within one year of approximately $5.0 million as of December 31, 2009. Approximately $6.4 million is principally unused overdraft, home equity and credit card lines on which management places a low probability for required funding.

Capital Resources

Stockholders’ equity increased 3.8% in 2009 entirely from current year earnings after quarterly dividends, and a 3.4% increase in accumulated other comprehensive income. The increase in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized gains on available for sale investment securities. The increase in stockholders’ equity in 2009 follows an increase of 3.8% in 2008 entirely from current earnings after quarterly dividends and an increase of 1.8% resulting from the effect of the change in the net unrealized gains (losses) on available for sale investment securities. Stockholders’ equity amounted to 11.4% and 11.1% of total assets at December 31, 2009 and 2008, respectively. The Company paid dividends of $.76 per share and $.74 per share in 2009 and 2008, respectively. As of December 31, 2009, First West Virginia Bancorp, Inc. had 277 stockholders of record.

The Holding Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. The Holding Company and its subsidiary bank are subject to regulatory risk-based capital guidelines administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. 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. Additional information on capital amounts, ratios and minimum regulatory requirements for the Company and its subsidiary bank can be found in Note 19 of the Consolidated Financial Statements.

Interest Rate Risk

Changes in interest rates can affect the level of income of a financial institution depending on the repricing characteristics of its assets and liabilities. This is termed interest rate risk. If a financial institution is asset sensitive, more of its assets will reprice in a given time frame than liabilities. This is a favorable position in a rising rate environment and would enhance income. If an institution is liability sensitive, more of its liabilities will reprice in a given time frame than assets. This is a favorable position in a falling rate environment. Financial institutions allocate significant time and resources to managing interest rate risk because of the impact that changes in interest rates can have to earnings. The initial step in the process of maintaining a Company’s interest rate sensitivity involves the preparation of a basic “gap” analysis of earning assets and interest bearing liabilities as reflected in the following table. The analysis measures the difference or the “gap” between the amount of assets and liabilities repricing within a given time period.

 

34

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

This information is used to manage a Company’s asset and liability positions. Management uses this information as a factor in decisions made about maturities of investment of cash flows, classification of investment securities purchases as available-for-sale or held-to-maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to alter asset and liability repricing characteristics. The overall objective is to minimize the impact to the margin of any significant change in interest rates.

The information presented in the following Interest Rate Risk table contains assumptions and estimates used by management in determining repricing characteristics and maturity distributions. As noted in the following table, the cumulative gap at one year is negative at approximately $11,952,000, which indicates the Company’s interest bearing liabilities reprice sooner than earning assets at December 31, 2009. As the table presented is as of a point in time and conditions change on a daily basis, any conclusions made may not be indicative of future results.

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 December 31, 2009 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 5.3%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately .6%. 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.

Interest Rate Risk Table - December 31, 2009

 

(dollars in thousands)
		Less than Three Months				Four to Twelve Months				One to Three Years				Greater than Three Years				Non- Interest Bearing				Total
ASSETS:
Cash and cash equivalents		$	8,639			$	-			$	-			$	-			$	4,715			$	13,354
Investment securities			4,899				10,200				48,854				49,097				2,947				115,997
Loans			21,673				40,636				45,878				16,466				3,928				128,581
Other assets			4,803				-				-				-				10,290				15,093
Allowance for loan losses			-				-				-				-				(1,894	)			(1,894	)
Total assets		$	40,014			$	50,836			$	94,732			$	65,563			$	19,986			$	271,131
LIABILITIES AND CAPITAL
NOW and savings accounts		$	21,629			$	2,476			$	6,554			$	65,390			$	-			$	96,049
Money Market Accounts (MMDA’s)			6,412				-				5,686				-				-				12,098
Certificates of deposit < $100,000			14,984				25,544				16,808				5,402				-				62,738
Certificates of deposit > $100,000			7,053				10,100				4,811				1,817				-				23,781
Noninterest bearing demand deposits			-				-				-				-				26,580				26,580
Federal funds purchased and repurchase agreements			11,025				-				-				-				-				11,025
FHLB borrowings			19				3,560				170				3,605				-				7,354
Other liabilities			-				-				-				-				700				700
Stockholders’ equity			-				-				-				-				30,806				30,806
Total liabilities and capital		$	61,122			$	41,680			$	34,029			$	76,214			$	58,086			$	271,131
GAP			(21,108	)			9,156				60,703				(10,651	)			(38,100	)
GAP/ Total Assets			(7.79	)%			3.38	%			22.39	%			(3.93	)%			(14.05	)%
Cumulative GAP			(21,108	)			(11,952	)			48,751				38,100				0
Cumulative GAP/Total Assets			(7.79	)%			(4.41	)%			17.98	%			14.05	%			0.00	%

The above analysis contains repricing and maturity assumptions and estimates used by management.

 

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Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations

 

Market Information of Common Stock

First West Virginia Bancorp, Inc’s common stock is traded on the New York Stock Exchange Amex list under the symbol of FWV. The following table sets forth the high and low sales prices of the common stock during the respective quarters.

 

				First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2009		High Low		$ $	12.85 8.42		$ $	12.64 10.65		$ $	12.61 10.06		$ $	12.80 10.94
2008		High Low		$ $	17.90 14.20		$ $	15.90 14.50		$ $	15.96 13.45		$ $	15.30 12.80

Summarized Quarterly Financial Information

A summary of selected quarterly financial information follows:

 

2009		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total interest income		$	3,304,098			$	3,254,038			$	3,193,845			$	3,161,861
Total interest expense			1,193,530				1,105,757				1,054,974				973,838
Net interest income			2,110,568				2,148,281				2,138,871				2,188,023
Provision for loan losses			-				10,000				30,000				143,942
Investment securities gain (loss)			(7,393	)			185,945				(21,429	)			31,394
Total other income			296,901				302,979				341,091				661,515
Total other expenses			1,737,025				1,938,040				1,900,933				2,016,083
Income before income taxes			663,051				689,165				527,600				720,907
Net income			523,594				546,225				468,248				766,919
Net income per share			0.33				0.34				0.30				0.48
2008		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total interest income		$	3,482,786			$	3,329,189			$	3,366,841			$	3,335,265
Total interest expense			1,352,940				1,297,528				1,329,848				1,294,900
Net interest income			2,129,846				2,031,661				2,036,993				2,040,365
Provision for loan losses			-				-				-				-
Investment securities gain (loss)			112,501				(511	)			(2,081	)			-
Total other income			347,984				334,061				355,438				340,516
Total other expenses			1,762,484				1,723,293				1,734,713				1,788,280
Income before income taxes			827,847				641,918				655,637				592,601
Net income			636,341				511,217				521,905				536,048
Net income per share			0.40				0.32				0.33				0.34
2007		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total interest income		$	3,379,956			$	3,381,757			$	3,454,255			$	3,492,528
Total interest expense			1,321,508				1,313,361				1,397,738				1,398,893
Net interest income			2,058,448				2,068,396				2,056,517				2,093,635
Provision for loan losses			-				-				(100,000	)			-
Investment securities gain (loss)			(54,193	)			2,837				(605	)			29,706
Total other income			330,850				355,763				370,086				376,034
Total other expenses			1,864,452				1,787,705				1,787,298				1,832,789
Income before income taxes			470,653				639,291				738,700				666,586
Net income			415,396				506,022				579,613				534,931
Net income per share			0.26				0.32				0.36				0.34

 

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FIRST WEST VIRGINIA BANCORP, INC. DIRECTORS
Nada E. Beneke Assistant Secretary, First West Virginia Bancorp, Inc. Assistant Secretary, Progressive Bank, N.A. Registered Sanitarian, Ohio County Health Department President, Beneke Corporation   Sylvan J. Dlesk Chairman of the Board, First West Virginia Bancorp, Inc. President and Chief Executive Officer, First West Virginia Bancorp, Inc. President and Chief Executive Officer, Progressive Bank, N.A Owner, Dlesk Realty and Investments President, Dlesk, Inc. President, Ohio Valley Carpeting, Inc.		Gary W. Glessner Certified Public Accountant Managing member, Glessner & Associates, PLLC Licensed representative of HD Vest Financial Services, a non-banking subsidiary owned by Wells Fargo Managing member, Wheeling Coin, LLC Managing member, G & W Insurance Group, LLC Managing member, GW Rentals, LLC Vice President, Windmill Truckers Center, Inc. Vice President, Glessner Enterprises, Inc. Member, Red Stripe & Associates, LLC   Laura G. Inman Vice Chairman of the Board, First West Virginia Bancorp, Inc.		R. Clark Morton Chairman of the Board, Progressive Bank, N.A. Attorney at Law Retired Partner, Herndon, Morton, Herndon & Yaeger   William G. Petroplus Attorney at Law Member/Partner Petroplus & Gaudino   Thomas L. Sable Managing Partner, The Summit Atlantic Group, LLC Clerk/Treasurer, Village of Bellaire

 

FIRST WEST VIRGINIA BANCORP, INC. OFFICERS
Sylvan J. Dlesk Chairman, President and Chief Executive Officer   Laura G. Inman Vice Chairman		Francie P. Reppy Executive Vice President and Chief Financial Officer Chief Administrative Officer Treasurer   Brad D. Winwood Vice President and Senior Operations Officer		Connie R. Tenney Vice President   Deborah A. Kloeppner Secretary   Nada E. Beneke Assistant Secretary

 

PROGRESSIVE BANK, N.A. DIRECTORS
Nada E. Beneke		Sylvan J. Dlesk		Robert B. Hunnell, Jr.		R. Clark Morton
Dr. Clyde D. Campbell		Gary W. Glessner		Laura G. Inman		William G. Petroplus
Robert R. Cicogna		Elizabeth H. Hestick		Tulane B. Mensore		Thomas L. Sable

DIRECTORS EMERITI James C. Inman, Jr., David R. Rexroad

 

PROGRESSIVE BANK, N.A. OFFICERS
R. Clark Morton Chairman of the Board   Sylvan J. Dlesk President Chief Executive Officer   Francie P. Reppy Executive Vice President Chief Administrative Officer Chief Financial Officer   Connie R. Tenney Senior Vice President		Brad D. Winwood Senior Vice President Senior Accounting, Operations & Investment Officer   Michael J. Taylor Vice President Credit Administration   Gary S. Martin Vice President - Retail Lending   David E. Wharton Vice President Information Technology Officer Data Security Officer		Deborah A. Kloeppner Vice President Compliance and CRA Officer Secretary   Susan E. Reinbeau Vice President Branch Administrator Office Manager Woodsdale   Michele L. Stanley Vice President Operations Officer   Matej Kret Assistant Vice President Business Development Officer		Ron E. Michaux Assistant Vice President Business Development Officer   Mark D. Nicholson Assistant Vice President Business Development Officer   Janey S. Longwell Assistant Vice President Office Manager New Martinsville   Laura A. Schmidt Assistant Vice President Accounting Officer		Virginia L. Shutler Financial Analyst   Debra M. Tomlin Assistant Vice President Loan Officer   Rebecca A. Palmer Assistant Vice President Manager Data Processing   Kimberly A. Hughes Assistant Vice President Credit Analyst   James J. Warman Assistant Vice President Credit Analyst		Harold O. Thomas Sr. Business Development Officer   Susan M. Scotka Bank Secrecy & OFAC Officer   Beth A. Heyman Office Manager Bethlehem   Vickie D. Poling Loan Officer   Nada E. Beneke Assistant Secretary

 

STOCKHOLDER INFORMATION
Corporate Office:   First West Virginia Bancorp, Inc. 1701 Warwood Avenue Wheeling, WV 26003 Phone: (304) 277-1100 Fax: (304) 242-9628 www.progbank.com   Stock Trading Information:   First West Virginia Bancorp, Inc.’s common stock is traded on the New York Stock Exchange AMEX list under the symbol FWV.		Stock Registrar and Transfer Agent:   Any inquiries related to stockholder records, stock transfers, changes of ownership, and changes of address should be sent to the transfer agent at the following address:   Investor Relations Department Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016-9982 (800) 368-5948 www.rtco.com		Annual Meeting   The Annual Meeting of Stockholders will be held at 4:00 p.m, on Tuesday, April 13, 2010, at the Warwood Office of Progressive Bank, N.A., 1701 Warwood Avenue, Wheeling, WV 26003.		Upon written request any shareholder of record on December 31, 2009, may obtain a copy of the Corporation’s 2009 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 31, 2010) by writing to the Secretary, First West Virginia Bancorp, Inc., 1701 Warwood Avenue, Wheeling, WV 26003. An electronic version of Form 10-K may also be obtained by visiting the Progressive Bank, N.A. website at www.progbank.com in the section entitled “Investor Relations” or at the Securities and Exchange’s website at www.sec.gov.