FIRST WEST VIRGINIA BANCORP INC - FORM 10-K - EX-13.1 - ANNUAL REPORT TO SHAREHOLDERS, AS LISTED IN PART II, ITEM 8

FIRST WEST VIRGINIA BANCORP INC - FORM 10-K - EX-13.1 - ANNUAL REPORT TO SHAREHOLDERS, AS LISTED IN PART II, ITEM 8 - March 31, 2011

Attached files

Attached files

FIRST WEST VIRGINIA BANCORP INC Reports

file	filename
10-K - FORM 10-K - FIRST WEST VIRGINIA BANCORP INC	d10k.htm
EX-31 - SECTION 302 CEO CERTIFICATION - FIRST WEST VIRGINIA BANCORP INC	dex31.htm
EX-32 - SECTION 906 CEO & CFO CERTIFICATION - FIRST WEST VIRGINIA BANCORP INC	dex32.htm
EX-23 - CONSENT OF S.R. SNODGRASS, A.C. - FIRST WEST VIRGINIA BANCORP INC	dex23.htm
EX-11.1 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - FIRST WEST VIRGINIA BANCORP INC	dex111.htm
EX-31.1 - SECTION 302 CFO CERTIFICATION - FIRST WEST VIRGINIA BANCORP INC	dex311.htm
EX-21.1 - SUBSIDIARIES OF THE HOLDING COMPANY - FIRST WEST VIRGINIA BANCORP INC	dex211.htm
EX-14.1 - CODE OF ETHICS - FIRST WEST VIRGINIA BANCORP INC	dex141.htm
EX-12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS - FIRST WEST VIRGINIA BANCORP INC	dex121.htm

Exhibit 13.1

LOGO

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 2010 Annual Report of First West Virginia Bancorp, Inc. Consolidated net income for 2010 was $2,339,281 or $1.42 per share, an increase of $34,295 or 1.5% as compared to $2,304,986 or $1.39 per share a year earlier. Total assets for the Company increased 2.5% over the prior year to $277,958,652 at December 31, 2010 as compared to $271,130,609 at December 31, 2009. Total stockholders’ equity increased 1.0% to $31,101,186 as compared to $30,806,237 reported in 2009. The book value per share was $18.82 at December 31, 2010 as compared to $18.64 a year earlier.

On October 13, 2010 the Board of Directors declared a 4% common stock dividend payable to shareholders of record as of December 20, 2010. Additionally, the Board of Directors declared and paid cash dividends of $.73 during 2010 and 2009, respectively, after adjustment for the four percent (4%) common stock dividend.

Laura G. Inman announced her retirement from our Company’s Board of Directors effective April 2011. Mrs. Inman served as Vice Chairman of the Board of Directors since 2004 and has been a director of our Company, since 1993. She previously served as Chairman of the Board of Directors of the Company from 1995 to 1998 and as Senior Vice President from 1993 to 1995. Mrs. Inman also served as a Director of Progressive Bank, N.A., our subsidiary bank, since 1993. Upon completion of our merger with the former Wellsburg Banking & Trust Company in 1993, she served as Senior Vice President of Progressive Bank, N.A. until 2005. Laura will remain an emeritus director of Progressive Bank, N.A. We deeply appreciate her contribution and years of service to the Company.

Our subsidiary Bank operated in a safe and secure condition throughout the ravenous storms of 2010. Although the economic climate provided a challenge for our Company, we finished the year with growth in assets and earnings and a successful mitigation of losses in both loan and investment portfolios.

Our seasoned and savvy management team continues to embrace the Company’s vision while accomplishing our mission to the communities we serve.

Our Board of Directors remains steadfast in providing strong leadership enabling our organization to continue operating in the communities we serve with safety and soundness as our foundation.

We approach 2011 with a strong resolve and deep passion and anticipate another successful year.

Gratefully,

/s/ Sylvan J. Dlesk

Sylvan J. Dlesk

Chairman of the Board

President and Chief Executive Officer

First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS


	December 31,
	2010			2009
ASSETS
Cash and due from banks	$	4,622,677		$	4,714,371
Due from banks - interest bearing		5,309,936			1,569,418
Federal funds sold		-			7,070,000

Total cash and cash equivalents		9,932,613			13,353,789
Investment securities:
Available-for-sale (at fair value)		133,168,794			115,997,044
Loans		121,367,066			128,581,422
Less allowance for loan losses		(2,059,025	)		(1,894,361	)

Net loans		119,308,041			126,687,061
Premises and equipment, net		5,714,121			4,798,975
Accrued income receivable		1,094,835			1,203,635
Goodwill		1,644,119			1,644,119
Bank owned life insurance		3,415,247			3,310,587
Other assets		3,680,882			4,135,399

Total assets	$	277,958,652		$	271,130,609


LIABILITIES
Noninterest bearing deposits:
Demand	$	28,319,278		$	26,580,001
Interest bearing deposits:
Demand		42,112,794			40,589,903
Savings		78,678,200			67,556,655
Time		79,364,466			86,519,438

Total deposits		228,474,738			221,245,997
Federal funds purchased and securities sold under agreements to repurchase		13,477,420			11,025,432
Federal Home Loan Bank borrowings		3,775,583			7,354,309
Accrued interest payable		276,662			404,449
Other liabilities		853,063			294,185

Total liabilities		246,857,466			240,324,372


STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,662,814 and 1,599,411 shares issued at December 31, 2010 and December 31, 2009, respectively		8,314,070			7,997,055
Treasury stock - 10,000 shares at cost:		(228,100	)		(228,100	)
Surplus		6,288,403			5,609,357
Retained earnings		15,722,313			15,589,770
Accumulated other comprehensive income		1,004,500			1,838,155

Total stockholders’ equity		31,101,186			30,806,237

Total liabilities and stockholders’ equity	$	277,958,652		$	271,130,609

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

First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
	2010		2009		2008
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable	$	6,645,321	$	7,251,907	$	7,359,632
Tax-exempt		536,473		527,344		557,718
Debt securities:
Taxable		3,463,178		4,173,960		4,593,200
Tax-exempt		1,163,007		943,965		741,684
Dividends		-		-		37,238
Other interest income		49,908		15,938		83,895
Federal funds sold		8		728		140,714

Total interest and dividend income		11,857,895		12,913,842		13,514,081


INTEREST EXPENSE
Deposits		2,657,832		3,731,052		4,587,865
Federal funds purchased and repurchase agreements		112,297		127,979		172,899
FHLB and other long-term borrowings		285,373		469,068		514,452

Total interest expense		3,055,502		4,328,099		5,275,216


Net interest income		8,802,393		8,585,743		8,238,865

PROVISION FOR LOAN LOSSES		220,000		183,942		-


Net interest income after provision for loan losses		8,582,393		8,401,801		8,238,865


NONINTEREST INCOME
Service charges and other fees		594,126		702,529		812,516
Net gains on available for sale securities		565,274		188,517		109,909
Other operating income		817,182		899,957		565,483

Total noninterest income		1,976,582		1,791,003		1,487,908


NONINTEREST EXPENSE
Salary and employee benefits		3,822,492		3,684,089		3,668,387
Net occupancy expense of premises		1,420,868		1,272,483		1,235,117
Other operating expenses		2,479,538		2,635,509		2,105,266

Total noninterest expense		7,722,898		7,592,081		7,008,770


Income before income taxes		2,836,077		2,600,723		2,718,003

INCOME TAXES		496,796		295,737		512,492


Net income	$	2,339,281	$	2,304,986	$	2,205,511


WEIGHTED AVERAGE SHARES OUTSTANDING		1,652,814		1,652,814		1,652,814


EARNINGS PER COMMON SHARE	$	1.42	$	1.39	$	1.33


DIVIDENDS PER COMMON SHARE	$	0.73	$	0.73	$	0.71

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

First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


	Common Stock				Surplus		Retained Earnings			Treasury Stock			Accumulated Other Compre- hensive Income (loss)			Compre- hensive Income			Total
	Shares		Amount		Surplus		Retained Earnings			Treasury Stock			Accumulated Other Compre- hensive Income (loss)			Compre- hensive Income			Total
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 ($.71 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 ($.73 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

Comprehensive income:
Net income		-		-		-		2,339,281			-			-		$	2,339,281			2,339,281
Other comprehensive income, net of tax
Unrealized loss on securities net of reclassification adjustment (see disclosure)		-		-		-		-			-			(833,655	)		(833,655	)		(833,655	)

Comprehensive income																$	1,505,626

Cash dividend ($.73 per share)		-		-		-		(1,207,952	)		-			-						(1,207,952	)
Cash Paid in Lieu of fractional shares on stock dividend		-		-		-		(2,725	)		-			-						(2,725	)
4% Common Stock Dividend at Par Value		63,403		317,015		679,046		(996,061	)		-			-						—

BALANCE, DECEMBER 31, 2010		1,662,814	$	8,314,070	$	6,288,403	$	15,722,313		($	228,100	)	$	1,004,500					$	31,101,186


	2010			2009		2008
Disclsosure of reclassification amount:

Unrealized holding gains (losses) arising during the period	$	(481,094	)	$	1,090,223	$	560,792

Less reclassification adjustment for gains included in net income		352,561			117,578		68,550


Net unrealized gains (losses) on securities	$	(833,655	)	$	972,645	$	492,242

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

First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2010			2009			2008
OPERATING ACTIVITIES
Net income	$	2,339,281		$	2,304,986		$	2,205,511
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in Provision for loan losses		220,000			183,942			-
Depreciation and amortization		496,618			444,208			443,270
Amortization (accretion) of investment securities, net		130,563			(68,440	)		(231,842	)
Investment security gains		(565,274	)		(188,517	)		(109,909	)
Loss on disposal of assets		400			-			3,257
Decrease (increase) in cash surrender value of bank-owned life insurance		(104,660	)		243,397			(124,424	)
Decrease (increase) in interest receivable		108,800			49,118			(16,600	)
Decrease (increase) in interest payable		(127,787	)		(162,141	)		(31,464	)
Other, net		1,516,369			(2,140,193	)		(533,727	)

Net cash provided by operating activities		4,014,310			666,360			1,604,072


INVESTING ACTIVITIES
Net (increase) decrease in loans, net of charge-offs		7,148,912			(4,177,926	)		(3,089,128	)
Proceeds from sales of securities available-for-sale		17,588,511			11,355,204			7,068,208
Proceeds from maturities of securities available-for-sale		47,269,966			38,661,874			169,987,509
Proceeds from maturities of securities held-to-maturity		-			321,000			345,000
Principal collected on mortgage-backed securities		13,693,963			14,399,406			9,971,164
Purchases of securities available-for-sale		(96,626,108	)		(66,551,785	)		(191,960,149	)
Recoveries on loans previously charged-off		10,108			18,253			73,993
Purchases of premises and equipment		(1,412,164	)		(529,286	)		(355,685	)

Net cash used in investing activities		(12,326,812	)		(6,503,260	)		(7,959,088	)


FINANCING ACTIVITIES
Net increase in deposits		7,228,741			14,860,730			3,258,436
Dividends paid		(1,210,677	)		(1,207,952	)		(1,175,794	)
Increase (decrease) in short-term borrowings		2,451,988			12,237			(1,182,949	)
Proceeds from FHLB borrowings		-			-			1,690,000
Repayment of FHLB borrowings		(3,578,726	)		(3,575,060	)		(59,123	)

Net cash provided by financing activities		4,891,326			10,089,955			2,530,570


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,421,176	)		4,253,055			(3,824,446	)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		13,353,789			9,100,734			12,925,180


CASH AND CASH EQUIVALENTS, END OF YEAR	$	9,932,613		$	13,353,789		$	9,100,734


Supplemental Disclosures:
Cash Paid for Interest	$	3,183,289		$	4,490,240		$	5,306,680
Cash Paid for Income Taxes		391,918			453,853			886,000

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

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

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.

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 with maturities of less than 90 days.

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. Once a decline in value is determined to be other than temporary, if the investor does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. At December 31, 2010, 2009 and 2008, 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. The Bank is a member of the FHLB and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared with the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB, and (d) the liquidity position of the FHLB.

The FHLB has incurred losses in the prior two years and has suspended the payments of dividends. The losses are primarily attributable to impairment of investment securities associated with the extreme economic conditions in place over the last two years. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. More consideration was given to the long-term prospects for the FHLB as opposed to the recent stress caused by the extreme economic conditions the world is facing. Management also considered that the FHLB’s regulatory capital ratios have increased from the prior year, liquidity appears adequate, and new shares of FHLB stock continue to exchange hands at $100 par value.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. Nonaccrual loans may be returned to accrual status when none of its principal and interest payments are due and there has been a sustained period of repayment performance. 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, 2010 and 2009, 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 current agreement dated December 28, 2009 provides for a maximum commitment of $5,000,000. This commitment expires on December 28, 2011. As of December 31, 2010, the amount funded under this commitment amounted to $3,522,690. Loans sold to the FHLB are sold with limited recourse or credit risk 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 and outstanding to the FHLB were $6,758,928 and $3,820,570 as of December 31, 2010 and 2009, respectively. These loans were also subject to recourse obligation or credit risk in the amount of $232,888 and $108,068 at December 31, 2010 and 2009, respectively. The amount of income recognized as of a result of this agreement was $69,565, $22,616 and $7,821 for the years ending December 31, 2010, 2009 and 2008, respectively.

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.

Management tracks and assigns a historical loss percentage for each loan rating category within each loan type. A rolling three-year historical loss ratio is used, calculated on a quarterly basis.

Management currently utilizes nine qualitative factors that are adjusted based on changes in the lending environment and economic conditions. The qualitative factors include the following: levels of and trends in delinquencies, non-accruals, and charge-offs; trends within the loan portfolio; changes in lending policies and procedures; experience of lending personnel and management oversight; national and local economic trends; concentrations of credit; external factors such as legal and regulatory requirements; changes in the quality of loan review and Board oversight; and changes in the value of underlying collateral. The number of qualitative factors can change. Factors can be added for new risks or taken away if the risk no longer applies. Each loan type will have its own risk profile and management will evaluate and adjust each qualitative factor for each loan type quarterly, if necessary. For example, if one area of the loan portfolio is experiencing sharp increases in growth, it is likely the qualitative factor for trends in the loan portfolio would be increased for that loan type. As levels of delinquencies and non-accrual loans decline for commercial real estate and commercial loans it is likely that factor would be reduced.

In terms of the Company’s’s loan portfolio, the commercial and industrial loans and commercial real estate loans are deemed to have more risk than the consumer real estate loans and other consumer loans in the portfolio. The commercial loans not secured by real estate are highly dependent on financial condition and are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic conditions but generally have stronger forms of collateral. More recently, commercial real estate has been negatively impacted by devaluation so these commercial loans carry a higher qualitative factor for changes in the value of collateral. The commercial loans and commercial real estate loans have historically been responsible for the majority of the Company’s delinquencies, non-accrual loans, and charge-offs so both of these categories carry higher qualitative factors than consumer real estate loans and other consumer loans. The Company has historically experienced very low levels of consumer real estate and consumer loan charge-offs so these qualitative factors are set lower than the commercial real estate and commercial and industrial loans.

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.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses: (Continued)

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 $2,059,025 at December 31, 2010, 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 intangible asset was fully amortized as of December 31, 2009. The Company recognized amortization expense of $14,792 for the year ended December 31, 2008. The unamortized balance from the purchase of these core deposit intangible assets is $-0- at December 31, 2010 and 2009.

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 $3,415,247 and $3,310,587 at December 31, 2010 and 2009, respectively. The death benefit value of the bank-owned life insurance at December 31, 2010 and 2009 was $8.8 million and $8.7 million, respectively. 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 $88,932, $160,961 and $92,709 for 2010, 2009, and 2008, respectively.

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.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes: The Company and its subsidiary file a consolidated federal income tax return. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Statement of Income. 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 Dividends: On October 13, 2010, the Company declared a 4% stock dividend to stockholders of record on December 20, 2010. 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 dividends.

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:


	2010			2009			2008
Before-tax amount	$	(1,336,628	)	$	1,559,476		$	789,228
Tax effect		502,973			(586,831	)		(296,986	)

Net of tax effect		(833,655	)		972,645			492,242
Net income as reported		2,339,281			2,304,986			2,205,511


Total comprehensive income	$	1,505,626		$	3,277,631		$	2,697,753

Recent Accounting Pronouncements: In December 2009, the FASB issued ASU 2009-16, Accounting for Transfer of Financial Assets. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASU 2009-16 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash – a consensus of the FASB Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. This guidance did not have a material impact on the Company’s financial position or results.

In February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 clarifies the treatment for a modified loan that was acquired as part of a pool of assets. Refinancing or restructuring the loan does not make it eligible for removal from the pool, the

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

FASB said. The amendment will be effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010 or later and did not have a significant impact on the Company’s financial statements.

In July 2010, FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In August, 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies and did not have a significant impact on the Company’s financial statements.

In August, 2010, the FASB issued ASU 2010-22, Technical Corrections to SEC Paragraphs – An announcement made by the staff of the U.S. Securities and Exchange Commission. This ASU amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics and did not have a significant impact on the Company’s financial statements.

In December, 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist. The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this Update are effective for fiscal year, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20, enabling public-entity creditors to provide those disclosures after the FASB clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the FASB proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. The adoption of this guidance is not expected to have a significant impact on the Corporation’s/Company’s financial statements.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at December 31, 2010 and 2009:


	(Expressed in thousands) December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies	$	36,024	$	120	$	(446	)	$	35,698
Obligations of states and political subdivisions		33,738		678		(125	)		34,291
Mortgage-backed securities		61,580		1,828		(458	)		62,950
Equity securities		216		14		-			230

Total available-for-sale		131,558		2,640		(1,029	)		133,169


Total	$	131,558	$	2,640	$	(1,029	)	$	133,169


	(Expressed in thousands) December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
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

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 quarterly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio and the Company’s ability to hold the securities till they recover. Generally, impairment is considered other than temporary when an investment security has sustained a decline in market value for a period of twelve 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 30 positions that are temporarily impaired at December 31, 2010.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

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, 2010 and 2009:


	(Expressed in thousands) 2010
	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	$	15,542	$	(446	)	$	-	$	-		$	15,542	$	(446	)
Obligations of states and political subdivisions		6,056		(125	)		-		-			6,056		(125	)
Mortgage-backed securities		17,291		(457	)		266		(1	)		17,557		(458	)

Total debt securities		38,889		(1,028	)		266		(1	)		39,155		(1,029	)

Equity securities		-		-			-		-			-		-


Total	$	38,889	$	(1,028	)	$	266	$	(1	)	$	39,155	$	(1,029	)


	(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	)

The amortized cost and fair value of investment securities at December 31, 2010, 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	$	-	$	-	$	1,008	$	1,016
Due after one year through five years		-		-		13,265		13,412
Due after five years through ten years		-		-		33,211		33,022
Due after ten years		-		-		22,278		22,539

		-		-		69,762		69,989
Mortgage-backed securities		-		-		61,580		62,950
Equity securities		-		-		216		230

Total	$	-	$	-	$	131,558	$	133,169

Proceeds from sales of securities available-for-sale during the years ended December 31, 2010, 2009, and 2008, were $17,588,511, $11,355,204, and $7,068,208 respectively. Gross gains of $566,815 and gross losses of $1,541 in 2010; gross gains of $298,319 and gross losses of $109,802 in 2009; and gross gains of $114,687 and gross losses of $4,778 in 2008, were realized on those sales. Assets carried at $31,931,000 and $28,959,000 at December 31, 2010 and 2009, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 3 - LOANS AND LEASES

Loans outstanding at December 31, 2010 and 2009, are as follows:


	(Expressed in Thousands)
	2010		2009
Consumer Real Estate:
Construction	$	308	$	605
Farmland		246		278
Residential 1-4 Family		28,089		30,006
Home Equity Loans		2,976		3,063
Home Equity Lines of Credit		2,447		2,349

Total Consumer Real Estate		34,066		36,301
Commercial Real Estate:
Non-farm, non-residential		49,195		49,335
Multifamily (5 or more) residential properties		7,458		9,257

Total Commercial Real Estate		56,653		58,592
Commercial and Other Loans:
Commercial		7,033		9,029
Non-rated industrial development obligations		13,460		11,632
Other loans		39		22

Total Commercial and Other Loans		20,532		20,683
Consumer Loans:
Installment and other loans to individuals		9,696		12,608
Credit Cards		573		560

Total Consumer Loans		10,269		13,168

Total loans	$	121,520	$	128,744
Less unearned interest and deferred fees		153		163

Net loans	$	121,367	$	128,581

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. These policies and procedures are reviewed by management and approved by the Board of Directors on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company originates direct and indirect consumer loans including principally residential real estate, home equity lines and loans, credit cards, and indirect vehicle loans using a credit analysis as part of the underwriting process. Each loan type has a separate underwriting criteria, which consists of several factors including debt to income, type of collateral, credit history and customer relationship with the Company.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing the loan may fluctuate in value. Minimum standards and underwriting guidelines have been established for commercial loan types.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by the general economy or conditions specific to the real estate market such as geography and/or property type.

Non-accrual loans amounted to $4,902,515 and $4,091,733 at December 31, 2010 and 2009, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $289,590, $249,470 and $214,000 for 2010, 2009 and 2008, respectively.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 3 - LOANS AND LEASES (CONTINUED)

The following tables present the contractual aging of the recorded investment in past due loans by class of loans (in thousands):


	December 31, 2010
	Current			Loans 30- 59 days Past Due		Loans 60- 89 days Past Due		Loans 90 or more days Past Due		Total Past Due		Non - Accrual		Total Loans
Commercial and Other Loans	$	20,369		$	109	$	-	$	-	$	109	$	54	$	20,532
Commercial real estate		52,451			29		26		-		55		4,147		56,653
Consumer real estate		33,247			103		-		28		131		688		34,066
Consumer		10,218			34		3		-		37		14		10,269
Unearned interest and deferred fees		(153	)		-		-		-		-		-		(153	)

Total	$	116,132		$	275	$	29	$	28	$	332	$	4,903	$	121,367


	December 31, 2009
	Current			Loans 30- 59 days Past Due		Loans 60- 89 days Past Due		Loans 90 or more days Past Due		Total Past Due		Non - Accrual		Total Loans
Commercial and Other Loans	$	20,607		$	15	$	-	$	-	$	15	$	61	$	20,683
Commercial real estate		55,204			-		-		-		-		3,388		58,592
Consumer real estate		35,452			13		212		-		225		624		36,301
Consumer		13,073			59		17		-		76		19		13,168
Unearned interest and deferred fees		(163	)		-		-		-		-		-		(163	)

Total	$	124,173		$	87	$	229	$	-	$	316	$	4,092	$	128,581

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention”, “Substandard”, and “Doubtful.” Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of December 31, 2010 and 2009 (in thousands):


2010	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	19,735	$	743	$	54	$	-	$	20,532
Commercial Real Estate		42,050		6,388		8,215		-		56,653
Construction and Land Development		399		-		155		-		554

Total	$	62,184	$	7,131	$	8,424	$	-	$	77,739


Current	$	62,184	$	7,131	$	4,194	$	-	$	73,509
Past Due 30-59 days		-		-		29		-		29
Past Due 60-89 days		-		-		-		-		-
Past Due 90 days or more		-		-		-		-		-
Non- accrual		-		-		4,201		-		4,201

Total	$	62,184	$	7,131	$	8,424	$	-	$	77,739

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 3 - LOANS AND LEASES (CONTINUED)


2009	Pass		Special Mention		Substandard		Doubtful		Total
Commercial and Other	$	19,357	$	1,265	$	61	$	-	$	20,683
Commercial Real Estate		44,241		3,518		10,833		-		58,592
Construction and Land Development		663		117		103		-		883

Total	$	64,261	$	4,900	$	10,997	$	-	$	80,158


Current	$	64,261	$	4,900	$	7,548	$	-	$	76,709
Past Due 30-59 days		-		-		-		-		0
Past Due 60-89 days		-		-		-		-		-
Past Due 90 days or more		-		-		-		-		-
Non- accrual		-		-		3,449		-		3,449

Total	$	64,261	$	4,900	$	10,997	$	-	$	80,158

For consumer and residential real estate loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2010 and 2009 (in thousands):

2010

Performing

Non-performing

Total

Consumer

10,255

10,269

Consumer Real Estate

32,796

716

33,512

Total

43,051

730

43,781


2009	Performing		Non-performing		Total
Consumer	$	13,149	$	19	$	13,168
Consumer Real Estate		34,794		624		35,418

Total	$	47,943	$	643	$	48,586


	(Expressed in Thousands)
	December 31,
	2010		2009		2008
Average investment in impaired loans	$	5,062	$	3,648	$	2,796

Related allowance for loan losses		256		10		349

Partial charge-offs		-		-		-

Interest income recognized on a cash basis on impaired loans		-		-		-

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

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 3 - LOANS AND LEASES (CONTINUED)

Year -end impaired loans are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired (in thousands):


	December 31, 2010
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and Other Loans	$	54	$	54	$	-	$	54	$	-	$	57
Commercial real estate		4,147		1,701		2,446		4,147		256		4,613
Consumer real estate		364		364		-		364		-		392

Total	$	4,565	$	2,119	$	2,446	$	4,565	$	256	$	5,062


	December 31, 2009
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and Other Loans	$	61	$	61	$	-	$	61	$	-	$	85
Commercial real estate		3,388		3,388		-		3,388		-		3,136
Consumer real estate		624		620		4		624		3		417
Consumer		19		6		13		19		7		10

Total	$	4,092	$	4,075	$	17	$	4,092	$	10	$	3,648

The recorded investment in impaired loans was $3,275,000 in 2008.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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


	December 31,
	2010		2009		2008
Balance at beginning of year	$	1,894,361	$	1,923,455	$	2,042,997
Additions charged to operating expense		220,000		183,942		-
Recoveries		10,108		18,253		73,993

Total		2,124,469		2,125,650		2,116,990
Less loans charged-off		65,444		231,289		193,535

Balance at end of year	$	2,059,025	$	1,894,361	$	1,923,455

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table summarizes the primary segments of the ALL, segregated into the amount for loans individually evaluated for impairment by class of loans as of December 31, 2010 and 2009 (in thousands):


2010	Commercial and other			Commercial Real Estate			Consumer Real Estate		Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	203		$	1,345		$	267	$	79		$	1,894
Charge-offs		(14	)		-			-		(51	)		(65	)
Recoveries		-			-			-		10			10
Provision		23			166			5		26			220

Ending Balance	$	212		$	1511		$	272	$	64		$	2,059


Loans individually evaluated for impairment	$	-		$	256		$	-	$	-		$	256
Loans collectively evaluated for impairment		212			1,255			272		64			1,803

Ending Balance	$	212		$	1,511		$	272	$	64		$	2,059


2009	Commercial and other			Commercial Real Estate			Consumer Real Estate		Consumer			Total
Allowance for Loan Losses:
Beginning Balance	$	202		$	1,316		$	267	$	138		$	1,923
Charge-offs		(10	)		(155	)		-		(66	)		(231	)
Recoveries		11			-			-		7			18
Provision					184			-		-			184

Ending Balance	$	203		$	1345		$	267	$	79		$	1,894


Loans individually evaluated for impairment	$	-		$	-		$	3	$	7		$	10
Loans collectively evaluated for impairment		203			1,345			264		72			1,884

Ending Balance	$	203		$	1,345		$	267	$	79		$	1,894

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010 and 2009 (in thousands):


2010	Commercial and Other		Commercial Real Estate		Consumer Real Estate		Consumer		Unearned Discounts			Total
Loans individually evaluated	$	-	$	2,446	$	-	$	-	$	-		$	2,446
Loans collectively evaluated		20,532		54,207		34,066		10,269		(153	)		118,921

Ending Balance	$	20,532	$	56,653	$	34,066	$	10,269	$	(153	)	$	121,367


2009
Loans individually evaluated	$	-	$	-	$	4	$	13	$	-		$	17
Loans collectively evaluated	$	20,683		58,592		36,297		13,155		(163	)		128,564

Ending Balance		20,683	$	58,592	$	36,301	$	13,168	$	(163	)	$	128,581

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 5 - PREMISES AND EQUIPMENT

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


	December 31,				Original Useful Life Years
	2010		2009		Original Useful Life Years
Land	$	1,973,014	$	1,983,014
Land improvements		338,069		218,005		15
Leasehold improvements		1,060,274		404,598		15
Buildings		4,991,799		4,724,160		39
Furniture, fixtures & equipment		4,668,757		4,329,048		3 - 7

Total		13,031,913		11,658,825
Less accumulated depreciation		7,317,792		6,859,850

Premises and equipment, net	$	5,714,121	$	4,798,975

Charges to operations for depreciation approximated $496,618, $444,208, and $428,478 for 2010, 2009, and 2008, respectively.

NOTE 6 - DEPOSITS

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


	(Expressed in Thousands) 2010
	Demand
	Noninterest Bearing		Interest Bearing		Savings		Time
Individuals, partnerships and corporations (includes certified and official checks)	$	27,598	$	36,814	$	73,873	$	75,527
United States Government		12		-		-		-
States and political subdivisions		682		5,299		4,583		3,248
Commercial banks and other depository institutions		27		-		222		590

Total	$	28,319	$	42,113	$	78,678	$	79,365


	(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

Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $23,351,000 and $23,781,000 at December 31, 2010 and 2009, respectively. Interest expense on certificates of deposit of $100,000 or more was $576,000, $888,000 and $1,119,000 at December 31, 2010, 2009, and 2008, respectively.

A maturity distribution of time certificates of deposit at December 31, 2010, follows:


Due in 2011	$	42,104,000
Due in 2012		19,751,000
Due in 2013		5,365,000
Due in 2014		5,389,000
Due in 2015		6,749,000
Due in 2016 and thereafter		7,000

Total	$	79,365,000

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

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
	2010			2009			2010		2009
Balance at end of year	$	13,477,420		$	11,025,432		$	-	$	-

Average balance during the year		13,436,842			12,623,346			-		-

Maximum month-end balance		15,283,869			14,282,435			-		-

Weighted-average rate during the year		.84	%		1.01	%		-		-

Rate at December 31		.76	%		.93	%		-		-

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, 2010 was approximately $47.0 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $3,775,583 and $7,354,309 at December 31, 2010 and 2009, 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 2010. At December 31, 2010 the subsidiary bank had three fixed rate amortizing advances which totaled $3,775,583 with a weighted average interest rate of 4.78% of which $2,152,480 will mature in 2018 and $1,623,103 will mature in 2023.

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, 2010 and 2009, respectively.

Contractual maturities of FHLB borrowings as of December 31, 2010 were as follows:


December 31, 2011	$	82,570
December 31, 2012		86,602
December 31, 2013		90,832
December 31, 2014		95,267
December 31, 2015		99,919
Thereafter		3,320,393

	$	3,775,583

NOTE 9 - 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, 2010 concentrations of credit were as follows:


	Amount		Percent of Tier 1 Capital
Lessors of Nonresidential Buildings	$	11,890,070	42.2%

Lessors of Residential Buildings and Dwellings	$	11,551,604	41.0%

General Government Support	$	11,377,862	40.3%

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 10 - 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 $114,640, $63,000, and $100,000 for the years ended December 31, 2010, 2009, and 2008, 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 $24,128, $22,628, and $22,508 in 2010, 2009, and 2008, respectively.

NOTE 11 - 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 $1,923,847 at December 31, 2010, and $2,626,186 at December 31, 2009.

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


	December 31,
	2010			2009
Balance, January 1	$	2,626,186		$	3,142,008
New loans during the period		1,000,000			3,260
Repayments during the period		(1,702,339	)		(519,082	)

Ending balance	$	1,923,847		$	2,626,186

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 12 - 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:


	2010		2009
Commitments to extend credit	$	12,592,000	$	12,407,000
Standby letters of credit		5,892,000		90,000

As of December 31, 2010, approximately $8,973,000 are fixed interest rate commitments and $9,511,000 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 $5,892,000 expire in 2011. 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.

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 13 - 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, 2010 and 2009, were $2,519,000 and $2,636,000, respectively.

NOTE 14 - INCOME TAX

The provisions for income taxes at December 31 consist of:


	2010			2009			2008
Currently payable:
Federal	$	278,927		$	246,711		$	452,088
State		92,838			80,837			95,453
Deferred:
Federal		150,577			(37,922	)		(52,362	)
State		(25,546	)		6,111			17,313

Income tax expense	$	496,796		$	295,737		$	512,492

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


	2010			2009
Allowance for loan losses	$	778,690		$	722,789
Deferred loan fees		52,138			55,496
Accrued interest on nonperforming loans		423,752			371,080
Deferred compensation		79,278			85,931
Depreciation		(246,521	)		(41,390	)
Amortization		72,756			86,838
Goodwill		(149,067	)		(111,800	)
AMT		397,563			240,182
Deferred state income tax		(55,606	)		(64,290	)

Total deferred tax asset - federal		1,352,983			1,344,836
Total deferred tax asset - state		163,548			189,094

		1,516,531			1,533,930
Deferred tax assets arising from market adjustments of securities available for sale:
Federal		(517,469	)		(946,928	)
State		(88,580	)		(162,095	)

Net deferred tax assets	$	910,482		$	424,907

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:


	2010					2009					2008
	Amount			Percent		Amount			Percent		Amount			Percent
Computed tax at statutory federal rate		$ 964,266			34.0%		$ 884,246			34.0%		$ 924,121			34.0%
Plus state income taxes net of federal tax benefits		80,393			2.8%		55,872			2.2%		84,135			3.1%

		1,044,659			36.8%		940,118			36.2%		1,008,256			37.1%
Increase (decrease) in taxes resulting from:
Tax exempt income		(577,597	)		(20.4)%		(497,619	)		(19.1)%		(441,202	)		(16.2)%
Nondeductible interest expense		35,161			1.2%		38,797			1.5%		43,622			1.6%
Bank-owned life insurance		(35,584	)		(1.3)%		(155,372	)		(6.0)%		(42,304	)		(1.6)%
Other - net		30,157			1.1%		(30,187	)		(2.0)%		(55,880	)		(2.0)%

Actual tax expense	$	496,796			17.4%	$	295,737			10.6%	$	512,492			18.9%

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 15 - 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, 2010, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:


December 31, 2011	$	227,593
December 31, 2012		150,553
December 31, 2013		114,156
December 31, 2014		90,000
December 31, 2015		90,000
Thereafter		82,500

Rental expense under operating leases approximated $250,339 in 2010; $191,497 in 2009; and $180,665 in 2008.

NOTE 16 - OTHER OPERATING EXPENSES

Other operating expenses at December 31 included the following:


	2010		2009		2008
Directors’ fees	$	118,675	$	104,325	$	126,250
Stationery and supplies		152,549		142,894		215,249
Regulatory assessment and deposit insurance		422,515		583,189		108,253
Advertising		88,932		160,961		92,709
Postage and transportation		162,462		167,842		169,669
Other taxes		141,095		186,910		183,117
Service Expense		349,319		384,489		416,890
Other		1,043,991		904,899		793,129

Total	$	2,479,538	$	2,635,509	$	2,105,266

NOTE 17 - 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 2011, without approval of the Comptroller of the Currency, of approximately $2,272,000, plus an additional amount equal to the bank’s net profit for 2011 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 18 - 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, 2010, 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:

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 18 - 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, 2010
Total Capital (to Risk Weighted Assets)	$	30,377		19.78%	$	12,289		8.0%	$	15,361		10.0%
Tier I Capital (to Risk Weighted Assets)		28,462		18.53%		6,144		4.0%		9,217		6.0%
Tier I Capital (to Adjusted Total Assets)		28,462		10.31%		11,045		4.0%		13,806		5.0%
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%
Progressive Bank, N.A.
As of December 31, 2010
Total Capital (to Risk Weighted Assets)	$	30,121		19.68%	$	12,241		8.0%	$	15,302		10.0%
Tier I Capital (to Risk Weighted Assets)		28,206		18.43%		6,121		4.0%		9,181		6.0%
Tier I Capital (to Adjusted Total Assets)		28,206		10.23%		11,032		4.0%		13,789		5.0%
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%

NOTE 19 - FAIR VALUE MEASUREMENTS

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels defined by U.S. generally accepted accounting principles are as follows:

The following table presents the assets reported on the balance sheet at their fair value as of December 31, 2010 and 2009, by level within the fair value hierarchy. 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, 2010

Level I

Level II

Level III

Total

(In thousands)

Assets:

Assets measured on a recurring basis:

Securities available for sale

248

132,921

—

133,169

Assets measured on a nonrecurring basis:

Impaired loans

—

4,903

—

4,903


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

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 20 - 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:

2010

2009

(Amounts Expressed in Thousands)

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Financial assets:

Cash and cash equivalents

9,933

13,354

Investment securities

133,169

115,997

Loans

119,308

120,493

126,687

126,197

Bank owned life insurance

3,415

3,311

Accrued interest receivable

1,095

1,204

Financial liabilities:

Deposits

228,475

208,813

221,246

200,282

Federal funds purchased and repurchase agreements

13,477

11,025

FHLB and other long term borrowings

3,776

7,354

Accrued interest payable

277

404

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

Presented below are the consolidated balance sheets, statements of income, and statements of cash flows for First West Virginia Bancorp, Inc.

BALANCE SHEETS


	December 31,
	2010		2009
ASSETS
Cash	$	137,375	$	154,647
Investment securities available-for-sale (at fair value)		247,558		252,067
Investment in subsidiary bank		30,845,369		30,522,846
Other assets		112,579		134,966

Total assets	$	31,342,881	$	31,064,526


LIABILITIES
Deferred compensation	$	233,170	$	252,739
Accrued expenses		8,525		5,550

Total liabilities		241,695		258,289

STOCKHOLDERS’ EQUITY		31,101,186		30,806,237

Total liabilities and stockholders’ equity	$	31,342,881	$	31,064,526

STATEMENTS OF INCOME


	Year Ended December 31,
	2010		2009			2008
INCOME
Dividends from subsidiary bank	$	1,211,520	$	1,211,520		$	1,173,660
Gains (losses) on sales of investment securities		4,258		(29,960	)		(2,803	)
Other income		120,008		124,132			131,278

Total income		1,335,786		1,305,692			1,302,135


EXPENSES
Salary and employee benefits		-		-			14,797
Interest expense		-		-			159
Other expenses		171,246		124,352			168,790

Total expenses		171,246		124,352			183,746


Income before income taxes and undistributed net income of subsidiary		1,164,540		1,181,340			1,118,389

Income tax benefit		9,169		16,868			15,098

Equity in undistributed net income of subsidiary		1,165,572		1,106,778			1,072,024

NET INCOME	$	2,339,281	$	2,304,986		$	2,205,511

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010, 2009, AND 2008

NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2010			2009			2008
OPERATING ACTIVITIES
Net income	$	2,339,281		$	2,304,986		$	2,205,511
Adjustments to reconcile net income to net cash provided by operating activities:
Change in deferred tax benefit		7,365			22,752			12,750
Undistributed earnings of affiliate		(1,165,572	)		(1,106,778	)		(1,072,024	)
Changes in operating assets and liabilities:
Other assets		9,355			24,495			(32,257	)
Deferred compensation		(19,569	)		(60,466	)		(33,882	)
Other liabilities		2,976			(1,650	)		3,600
Net gains (losses) on sales of investment securities		(4,258	)		29,960			2,803

Net cash provided by operating activities		1,169,578			1,213,299			1,086,501


INVESTING ACTIVITIES
Proceeds from sales of securities		91,426			150,914			147,060
Purchases of investment securities		(67,599	)		(120,408	)		(116,277	)

Net cash provided by investing activities		23,827			30,506			30,783


FINANCING ACTIVITIES
Dividends paid		(1,210,677	)		(1,207,952	)		(1,175,794	)

Net cash used in financing activities		(1,210,677	)		(1,207,952	)		(1,175,794	)


Net increase (decrease) in cash and cash equivalents		(17,272	)		35,853			(58,510	)

Cash and cash equivalents at beginning of year		154,647			118,794			177,304


Cash and cash equivalents at end of year	$	137,375		$	154,647		$	118,794


Supplemental disclosures:
Cash paid for interest	$	-		$	-		$	159
Cash paid for income taxes		-			-			-

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, 2010. 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, 2010. 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, 2010 and 2009, 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, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated 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, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

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

S.R. Snodgrass, A.C.

Wheeling, West Virginia

March 18, 2011

S.R. Snodgrass, A.C.

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

Table One

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)


	December 31,
	2010			2009			2008			2007			2006
SUMMARY OF OPERATIONS
Total interest income	$	11,858		$	12,914		$	13,514		$	13,708		$	13,772
Total interest expense		3,056			4,328			5,275			5,431			4,943
Net interest income		8,802			8,586			8,239			8,277			8,829
Provision for loan losses		220			184			-			(100	)		-
Total other income		1,977			1,791			1,488			1,410			1,433
Total other expenses		7,723			7,592			7,009			7,272			7,614
Income before income taxes		2,836			2,601			2,718			2,515			2,648
Net income		2,339			2,305			2,206			2,036			2,144
PER SHARE DATA (1)
Net income	$	1.42		$	1.39		$	1.33		$	1.23		$	1.30
Cash dividends declared		0.73			0.73			0.71			0.70			0.70
Book value per share		18.82			18.64			17.39			16.47			15.29
AVERAGE BALANCE SHEET SUMMARY
Total loans, net	$	124,074		$	128,206		$	120,722		$	120,409		$	129,997
Investment securities		116,990			112,142			108,114			109,278			109,533
Deposits - interest bearing		198,042			190,981			182,450			182,682			190,160
Stockholders’ equity		29,415			28,192			27,295			26,223			25,416
Total assets		273,778			266,414			258,275			253,930			262,946
BALANCE SHEET
Investments	$	133,169		$	115,997		$	112,366		$	106,647		$	110,894
Loans		121,367			128,581			124,635			121,739			120,709
Allowance for loan losses		(2,059	)		(1,894	)		(1,923	)		(2,043	)		(2,297	)
Other assets		25,482			28,447			23,086			26,844			25,132

Total Assets	$	277,959		$	271,131		$	258,164		$	253,187		$	254,438

Deposits	$	228,475		$	221,246		$	206,385		$	203,127		$	210,409
Federal funds purchased and repurchase agreements		13,477			11,025			11,013			12,196			15,240
FHLB borrowings		3,776			7,354			10,929			9,298			2,343
Other liabilities		1,130			700			1,100			1,351			1,169
Stockholders’ equity		31,101			30,806			28,737			27,215			25,277

Total Liabilities and Stockholders’ equity	$	277,959		$	271,131		$	258,164		$	253,187		$	254,438

SELECTED RATIOS
Return on average assets		0.85	%		0.87	%		0.85	%		0.80	%		0.82	%
Return on average equity		7.95	%		8.18	%		8.08	%		7.76	%		8.44	%
Average equity to average assets		10.74	%		10.58	%		10.57	%		10.33	%		9.67	%
Dividend payout ratio (1)		51.41	%		52.52	%		53.38	%		56.91	%		53.85	%
Loan to Deposit ratio		53.12	%		58.12	%		60.39	%		59.93	%		57.37	%

(1)	Adjusted for the 4 percent common stock dividend to stockholders of record as of December 20, 2010 and the 4 percent common stock dividend to shareholders of record on October 1, 2008.

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, 2010, 2009 and 2008. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.

The Company reported net income of $2,339,281 or $1.42 per share for the year ended December 31, 2010 as compared to $2,304,986 or $1.39 per share for the year ended December 31, 2009. The increase in net income during 2010 over 2009 of $34,295 or 1.5% was primarily the result of the increases in net interest income and noninterest income, offset in part by increases in noninterest expenses, the provision for loan losses and income tax expense. Net interest income rose in 2010 as compared to 2009 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 $185,579 or 10.4% and was primarily attributable to the increase in the gains on sales of investment securities, offset in part by a decrease in service charges and other fee income and in other operating income. Noninterest expenses increased $130,817 or 1.7% in 2010 over 2009 and was primarily due to an increase in salary and employee benefit costs and occupancy expenses, offset by the decrease in other operating expenses. During 2010, an increase to the provision for loan losses was made in the amount of $36,058 based upon the reserves required on nonperforming assets. The return on average assets was .85% and .87% as of December 31, 2010 and 2009, respectively. The return on average equity was 7.95% and 8.18% at December 31, 2010 and 2009, respectively. The Board of Directors declared and paid cash dividends of $.73 per share during 2010 and 2009, 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.

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, 2010, 2009, and 2008. Average balance sheet information as of December 31, 2010, 2009, and 2008 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, 2010							December 31, 2009							December 31, 2008
	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	$	30,220	$	953		3.15	%	$	23,321	$	910		3.90	%	$	23,179	$	1,169		5.04	%
Mortgage backed securities		58,419		2,470		4.23	%		63,068		3,125		4.96	%		63,200		3,296		5.22	%
States and political subdivisions		28,116		1,199		4.26	%		23,993		989		4.12	%		20,412		797		3.90	%
Other securities		235		4		1.70	%		1,760		94		5.34	%		1,323		73		5.52	%

Total Investment securities:		116,990		4,626		3.95	%		112,142		5,118		4.56	%		108,114		5,335		4.93	%
Interest bearing deposits		12,416		35		0.28	%		1,403		1		0.07	%		3,631		69		1.90	%
Federal funds sold		58		-		0.00	%		7,115		1		0.01	%		8,566		141		1.65	%
Loans, net of unearned income		124,074		7,182		5.79	%		128,206		7,779		6.07	%		120,722		7,917		6.56	%
Other earning assets		1,481		15		1.01	%		1,476		15		1.02	%		1,349		52		3.85	%

Total earning assets		255,019		11,858		4.65	%		250,342		12,914		5.16	%		242,382		13,514		5.58	%
Other assets		18,759							16,072							15,893

Total Assets	$	273,778						$	266,414						$	258,275

LIABILITIES
Time deposits	$	83,399	$	2,085		2.50	%	$	92,544	$	3,100		3.35	%	$	94,845	$	3,979		4.20	%
Savings deposits		73,936		484		0.65	%		61,047		499		0.82	%		52,738		458		0.87	%
Interest bearing demand deposits		40,707		89		0.22	%		37,390		132		0.35	%		34,867		151		0.43	%
Federal funds purchased and repurchase agreements		13,437		112		0.83	%		12,623		128		1.01	%		12,090		173		1.43	%
FHLB and other long-term borrowings		5,799		286		4.93	%		9,377		469		5.00	%		10,209		514		5.03	%

Total interest bearing liabilities		217,278		3,056		1.41	%		212,981		4,328		2.03	%		204,749		5,275		2.58	%
Noninterest bearing demand deposits		26,030							24,252							24,839
Other liabilities		1,055							989							1,392

Total Liabilities		244,363							238,222							230,980
STOCKHOLDERS’ EQUITY		29,415							28,192							27,295


Total Liabilities and Stockholders’ Equity	$	273,778						$	266,414						$	258,275

Net yield on earning assets			$	8,802		3.45	%			$	8,586		3.43	%			$	8,239		3.40	%


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 2010, 2009, and 2008, respectively. The effect of this adjustment is presented below.

Investment securities	$	116,990	$	5,402		4.62	%	$	112,142	$	5,747		5.12	%	$	108,114	$	5,829		5.39	%
Loans		124,074		7,539		6.08	%		128,206		8,131		6.34	%		120,722		8,289		6.87	%

Total earning assets	$	255,019	$	12,991		5.09	%	$	250,342	$	13,895		5.55	%	$	242,382	$	14,380		5.93	%

Taxable equivalent net yield on earning assets			$	9,935		3.90	%			$	9,567		3.82	%			$	9,105		3.76	%

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, 2010, 2009, and 2008.

Net interest income increased $216,650 or 2.5% in 2010 compared to 2009, and follows an increase in 2009 of $346,878 or 4.2% from 2008. During 2010, the increase in net interest income was primarily due to a decline in the interest paid on deposits and on other borrowings combined with the decrease in the interest paid on repurchase agreements, offset in part by the decrease in the interest earned on investment securities and loans. The increase in net interest income in 2009 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 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 3.90% for 2010, as compared to 3.82% and 3.76% earned during 2009 and 2008. respectively.

Interest expense in 2010 decreased $1,272,597 or 29.4% from 2009, compared to the decrease of $947,117 or 18.0% from 2008 to 2009. In 2010, 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 savings deposits. The decline in interest expense in 2009 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. The average yield paid on interest bearing liabilities during 2010 fell 62 basis points, from 2.03% in 2009 to 1.41% in 2010, and follows a decrease in 2009 of 55 basis points, from 2.58% in 2008 to 2.03% in 2009. The average volume of interest bearing liabilities increased $4.3 million or 2.0% in 2010 compared to 2009, after increasing $8.2 million or 4.0% in 2009 as compared to 2008.

Interest and fees on loans decreased $597,457 or 7.7% from 2009 to 2010, after decreasing $138,099 or 1.7% from 2008 to 2009. Interest and fees on loans declined in 2010 as compared to 2009 primarily due to the decline in the yield earned on loans combined with the decrease in the average volume of loans. The taxable equivalent yield on loans declined 26 basis points in 2010, from 6.34% in 2009 to 6.08% in 2010, and follows a decrease of 53 basis points in 2009, from 6.87% in 2008 to 6.34% in 2009. The average loan volume decreased $4.1 million or 3.2% in 2010 as compared to 2009 after increasing $7.5 million or 6.2% in 2009 as compared to 2008. During 2009 as compared to 2008, 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 2010 decreased $491,740 or 9.6% over 2009, and follows a decrease of $216,959 or 4.1% over 2008. 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 50 basis points in 2010, from 5.12% in 2009 to 4.62% in 2010, and follows a decrease in 2009 of 27 basis points, from 5.39% in 2008 to 5.12% in 2009. The activity of the investment securities portfolio increased with the average volume increasing $4.8 million or 4.3% in 2010 as compared to 2009, and follows an increase of $4.0 million or 3.7% in 2009 as compared to 2008. In 2009, 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.

Noninterest Income

Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $185,579 or 10.4%, in 2010 as compared to an increase of $303,095 or 20.4% in 2009. The increase in noninterest income in 2010 as compared to 2009 was primarily due to the increase in the net gains on sales of investment securities and other operating income which was offset in part by a decrease in service charges and other fee income. In 2009, noninterest income primarily increased due to increases in the net gains 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.

Service charges and other fees are earned from assessments made on checking and savings accounts. Service charges and other fee income fell $108,403 in 2010, down 15.4%, from 2009, as compared to the decrease of $109,987 or 13.5% from 2008 to 2009. The decline in service charges in 2010 was primarily due to a decline in overdraft charges combined with a decrease in service charges on deposit accounts. In 2009 the decrease in service charges and other fees was primarily due to a decline in overdraft charges combined with a decrease in service charges on deposit accounts.

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, 2010 and 2009 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)	2010 Compared to 2009									2009 Compared to 2008
	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	$	269		$	(226	)	$	43		$	7		$	(266	)	$	(259	)
Mortgage backed securities		(230	)		(425	)		(655	)		(7	)		(164	)		(171	)
Obligations of states and political subdivisions		170			40			210			140			52			192
Other securities		(81	)		(9	)		(90	)		24			(3	)		21

Total investment securities		128			(620	)		(492	)		164			(381	)		(217	)
Interest bearing deposits		8			26			34			(42	)		(26	)		(68	)
Federal funds sold		(1	)		-			(1	)		(24	)		(116	)		(140	)
Loans, net of unearned income		(251	)		(346	)		(597	)		491			(629	)		(138	)
Other earning assets		-			-			-			5			(42	)		(37	)

Total interest earned		(116	)		(940	)		(1,056	)		594			(1,194	)		(600	)


INTEREST EXPENSE ON:
Time deposits		(306	)		(709	)		(1,015	)		(97	)		(782	)		(879	)
Savings deposits		105			(120	)		(15	)		72			(31	)		41
Interest bearing demand deposits		12			(55	)		(43	)		11			(30	)		(19	)
Federal funds purchased and repurchase agreements		8			(24	)		(16	)		8			(53	)		(45	)
FHLB and other long-term borrowings		(179	)		(4	)		(183	)		(42	)		(3	)		(45	)

Total interest paid		(360	)		(912	)		(1,272	)		(48	)		(899	)		(947	)


Net interest differential	$	244		$	(28	)	$	216		$	642		$	(295	)	$	347


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 2010, 2009, and 2008, respectively.

Investment securities	$	248		$	(593	)	$	(345	)	$	217		$	(299	)	$	(82	)

Loans		(262	)		(330	)		(592	)		514			(672	)		(158	)


Total interest earned	$	(7	)	$	(897	)	$	(904	)	$	670		$	(1,155	)	$	(485	)


Net interest differential	$	353		$	15		$	368		$	718		$	(256	)	$	462

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 $376,757 in 2010 as compared to 2009. 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 2010, the Company accounted for securities gains of $566,815 and securities losses of $1,541 which were attributable to sales of securities available for sale. In 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. During 2008, the Company and its subsidiary bank accounted for securities gains of $114,687 and securities losses of $4,778 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 fell $82,775 or 9.2% in 2010 as compared to 2009. During 2010, the decrease in other operating income was primarily due to declines in miscellaneous income, credit life commissions, utility bill and collection fees, offset in part by an increase in checkbook sales, 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, and in the income earned on loans sold to the FHLB. 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.

Noninterest Expense

Noninterest expenses are comprised of salaries and employee benefits, net occupancy of premises and other operating expenses. In 2010, noninterest expenses increased $130,817 or 1.7% over 2009, and follows a increase of $583,311 or 8.3% in 2009 over 2008. The increase in noninterest expense in 2010 as compared to 2009 was primarily due to increases in occupancy expenses and salary and employee benefits expenses, offset in part by the decrease in other operating expenses. 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.

Occupancy expenses increased $148,385 or 11.7% in 2010 over 2009, and follows an increase of $37,366 or 3.0% in 2009 over 2008. Occupancy expenses increased in 2010 primarily due to increases in banking house lease expenses, furniture and fixtures depreciation expenses, furniture and fixture expenses and other real estate owned expenses. The increase in occupancy expenses in 2009 was 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.

Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $138,403 or 3.8% in 2010 over 2009. The increase in salary and employee benefits expense in 2010 was primarily attributable to normal annual merit adjustments combined with the increase in employee benefit plan expenses. During 2009, salary and employee benefits increased $15,702 or .4% as compared to the same period in 2008. The increase in salary and employee benefits expense in 2009 was primarily attributable to normal annual merit adjustments.

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 decreased $155,971 or 5.9%, in 2010 as compared to the same period of the prior year. The decrease in other operating expense was primarily due to decreases in regulatory assessments, advertising expenses service expenses, postage and transportation expense and in other taxes, offset in part by increases in stationary and supplies expense, directors fees, and other expenses. During 2009, other operating expense increased $530,243, or 25.2%, over 2008 and 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.

Income Taxes

Income tax expense for the period ended December 31, 2010 was $496,796, an increase of $201,059 or 68.0% over 2009 as compared to the decrease of $216,755 or 42.3% from 2008 to 2009. The increase in taxable income offset in part by the increase in tax exempt income primarily contributed to the increase in income tax expense in 2010. Components of the income tax expense for December 31, 2010 were $374,988 for federal taxes and $121,808 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, 2010, 2009 and 2008. Additional information regarding income taxes is contained in Note 14 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 $1,699,480 in 2010; $1,471,309 in 2009; and $1,299,402 in 2008. 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 $1,450,000 in 2010; $1,124,000 in 2009; and $1,375,000 in 2008.

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

BALANCE SHEET ANALYSIS

Investments

Investment securities increased $17,171,750 or 14.8% during 2010, and followed an increase in 2009 of $3,630,734 or 3.2% from 2008. 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 74.6% of total securities at December 31, 2010, as compared to 75.4% at December 31, 2009. 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 14.8% from 2009, and represented 100% of the investment portfolio at December 31, 2010. The increase in the available for sale securities was primarily due to the purchase of obligations of U.S Government agency and corporation securities , obligations of states and political subdivisions and mortgage backed securities. The Company did not have any investment securities classified as held to maturity securities at December 31, 2010 and 2009. 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 $1,610,549 and $2,947,178 at December 31, 2010 and 2009, respectively.

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, 2010 and December 31, 2009 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, 2010										December 31, 2009
	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	$	-		-	%	$	18		0.20	%	$	-		-	%	$	1,022		4.94	%
After One But Within Five Years		-		-			10,090		2.79			-		-			18,097		2.69
After Five But Within Ten Years		-		-			25,586		2.92			-		-			7,311		3.59
After Ten Years		-		-			4		0.88			-		-			4		0.88

		-		-			35,698		2.88			-		-			26,434		3.03

States & Political Subdivisions
Within One Year		-		-			999		4.39			-		-			281		6.46
After One But Within Five Years		-		-			3,322		5.57			-		-			4,892		5.22
After Five But Within Ten Years		-		-			7,435		5.78			-		-			4,040		5.69
After Ten Years		-		-			22,535		6.38			-		-			19,828		6.41

		-		-			34,291		6.11			-		-			29,041		6.11

Mortgage-Backed Securities		-		-			62,950		3.98			-		-			60,283		4.58

Equity Securities		-		-			230		2.44			-		-			239		2.45


Total	$	-		-	%	$	133,169		4.23	%	$	-		-	%	$	115,997		4.60	%

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

Loans

Total loans, net of unearned income, declined $7,214,356 or 5.6% from 2009 to 2010. The decrease in total loans in 2010 was primarily due to the decreases in consumer loans, consumer real estate loans, commercial real estate loans and commercial and other loans which decreased $2,899,000 $2,235,000, $1,939,000 and $151,000, respectively. The decrease in consumer loans in 2010 was primarily due to the decline in installment loans to individuals. The decrease in consumer real estate loans during 2010 was primarily in construction and residential real estate loans. During 2010, the decrease in commercial real estate loans was primarily due to the decrease in multi-family residential loans as well as the decrease in loans secured by non-farm non-residential commercial real estate. Commercial loans declined during 2010 primarily due to decreases in commercial and industrial loans, offset in part by the increase in non-rated industrial development obligations. During 2009, total loans increased $3,946,637 or 3.2%. The increase in loan volume in 2009 was primarily due to increases in commercial real estate loans which increased approximately $6,315,000, offset in part by decreases in commercial and other loans, consumer loans and consumer real estate loans which decreased $1,350,000, $918,000, and $134,000, respectively. The increase in commercial real estate loans was primarily due to an increase in loans secured by non-farm non-residential commercial real estate in 2009. The decrease in commercial loans in 2009 was primarily due to decreases in non-rated industrial development obligations and in commercial and industrial loans. In 2009 the decrease in consumer loans was primarily due to the decline in installment loans to individuals. The decrease in consumer real estate loans during 2009 was primarily in construction and residential real estate loans, offset in part by the increase in home equity loans.

Commercial real estate loans which include real estate loans secured by non-farm, non-residential properties and multi-family residential property loans comprised forty-seven percent (47%) of the loan portfolio. Consumer real estate loans which include construction, farmland, real estate residential loans, and home equity loans comprised twenty-eight percent (28%) of the loan portfolio. Commercial and other loans which include commercial and industrial loans and non-rated industrial development obligations comprised seventeen percent (17%) of the loan portfolio. Consumer loans which include installment and other loans to individuals and credit cards comprised eight percent (8%) of the loan portfolio. The changes in the composition of the loan portfolio from 2009 to 2010 were a 1% increase in commercial real estate loans, a 1% increase in commercial and other loans and a 1% decrease in consumer 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, 2010 and 2009:


(dollars in thousands)	December 31, 2010						December 31, 2009
	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
Construction	$	155	$	21	$	132	$	222	$	249	$	134
Commercial real estate - nonfarm, nonresidential property		736		6,097		42,362		687		5,586		43,062
Commercial		1,519		2,875		2,639		2,565		3,029		3,435
Non-rated industrial development obligations		997		5,770		6,693		869		5,753		5,010

Total	$	3,407	$	14,763	$	51,826	$	4,343	$	14,617	$	51,641

The following table presents an analysis of fixed and variable rate loans as of December 31, 2010 and 2009 along with the contractual maturities of loans other than installment loans and residential mortgages:


(dollars in thousands)	December 31, 2010						December 31, 2009
	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	$	2,197	$	10,503	$	9,607	$	2,570	$	10,229	$	7,429
Variable Rates		1,210		4,260		42,219		1,773		4,388		44,212

Total	$	3,407	$	14,763	$	51,826	$	4,343	$	14,617	$	51,641

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 $6,758,928 and $3,820,570 as of December 31, 2010 and 2009, respectively. The loans which were sold were also subject to a recourse obligation or credit risk in the amount of $232,888 and $108,068 at December 31, 2010 and 2009, 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 $4,939,000 at December 31, 2010 as compared to $4,265,000 at December 31, 2009. Non-performing loans increased $674,000 in 2010, after increasing $982,000 in 2009. The increase in non-performing loans in 2010 as compared to 2009 was primarily due to increases in non-accrual loans, offset in part by the decrease in other real estate loans. 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,
	2010			2009			2008			2007			2006
Past Due 90 Days or More:
Commercial and Other Loans	$	-		$	-		$	-		$	19		$	-
Commercial real estate		-			-			-			-			-
Consumer real estate		28			-			-			-			-
Consumer		-			-			-			7			3

		28			-			-			26			3

Non-accrual:
Commercial and Other Loans	$	54		$	2,254		$	111		$	79		$	129
Commercial real estate		4,147			1,195			2,866			2,165			2,974
Consumer real estate		688			624			282			192			264
Consumer		14			19			16			1			13

	$	4,903		$	4,092		$	3,275		$	2,437		$	3,380

Other Real Estate	$	8		$	173		$	8		$	-		$	-

Total non-performing assets	$	4,939		$	4,265		$	3,283		$	2,463		$	3,383

Total non-performing assets to total loans and other real estate		4.07	%		3.31	%		2.63	%		2.02	%		2.80	%

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 $4,903,000 or 4.0% of total loans outstanding as of December 31, 2010, as compared to $4,092,000 or 3.2% of total loans outstanding as of December 31, 2009. 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 $28,000 and $-0- at December 31, 2010 and 2009. Other real estate owned totaled $8,000 and $173,000 at December 31, 2010 and 2009, respectively. 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 had the loans performed in accordance with their original terms was $289,590, $249,470 and $214,000 for 2010, 2009 and 2008, respectively.

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 increased $164,664 or 8.7%, between December 31, 2009 and December 31, 2010. The allowance for loan losses represented 1.7% and1.5% of outstanding loans as of December 31, 2010 and 2009. Net loan charge-offs were $55,336 in 2010, compared to $213,036 in 2009 and $119,542 in 2008. The net loan charge-offs remain within historical ranges. The net loan charge-offs in 2010, 2009 and 2008 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,
	2010			2009			2008			2007			2006
Allowance for loan losses:
Balance at beginning of period:	$	1,894		$	1,923		$	2,043		$	2,297		$	2,320

Loans Charged Off:
Commercial and Other loans		14			10			150			98			8
Commercial real estate		-			155			15			13			10
Consumer real estate		-			-			-			29			-
Consumer		51			66			29			26			56

		65			231			194			166			74

Recoveries:
Commercial and Other loans		1			11			69			3			36
Commercial real estate		-			-			3			2			-
Consumer real estate		-			-			-			-			-
Consumer		9			7			2			7			15

		10			18			74			12			51

Net Charge-offs		55			213			120			154			23

Additions Charged to Operations		220			184			-			(100	)		-


Balance at end of period:	$	2,059		$	1,894		$	1,923		$	2,043		$	2,297


Average Loans Outstanding	$	124,074		$	128,206		$	120,722		$	120,409		$	129,997


Ratio of net charge-offs to Average loans outstanding for the period		0.04	%		0.17	%		0.10	%		0.13	%		0.02	%

Ratio of the Allowance for Loan Losses to Loans Outstanding for the period		1.70	%		1.47	%		1.54	%		1.68	%		1.90	%

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, 2010. 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,
	2010					2009					2008					2007					2006
	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
Commercial and Other Loans	$	212		16.9	%	$	203		16.1	%	$	202		17.7	%	$	147		16.4	%	$	242		16.5	%
Commercial real estate		1,511		46.5	%		1,345		45.5	%		1,350		41.8	%		1,498		43.0	%		1,609		43.2	%
Consumer real estate		272		28.1	%		267		28.2	%		267		29.2	%		267		30.0	%		296		29.1	%
Consumer		64		8.5	%		79		10.2	%		104		11.3	%		131		10.6	%		150		11.2	%


Total	$	2,059		100.0	%	$	1,894		100.0	%	$	1,923		100.0	%	$	2,043		100.0	%	$	2,297		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 $7.2 million or 3.3% in 2010. 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 $1.7 million or 6.5%, interest bearing demand deposits increased $1.5 million or 3.8% and savings deposits increased approximately $11.1 million, or 16.5%, during 2010 while time deposits decreased approximately $7.2 million, or 8.3%. The decline in time deposits is primarily a result of deposit customers seeking higher yielding deposit products.

At December 31, 2010, 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, 2009 to December 31, 2010.

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, 2010 and 2009. Repurchase agreements increased approximately $2,451,988 or 22.2%, from $11,025,432 at December 31, 2009 to $13,477,420 at December 31, 2010. The increase in repurchase agreements in 2010 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 $3,775,583 and $7,354,309 at December 31, 2010 and 2009, respectively, with an interest rate of 4.78% and 4.93%, 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.

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	$	83	$	178	$	195	$	3,320	$	3,776
Operating Leases		228		265		180		82		755

	$	311	$	443	$	375	$	3,402	$	4,531

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

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	$	8,676	$	207	$	255	$	3,454	$	12,592
Standby letters of credit		5,892		-		-		-		5,892

	$	14,568	$	207	$	255	$	3,454	$	18,484

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 $133,168,794 classified as available for sale at December 31, 2010. 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 $39,155,000. 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, 2010, 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, 2010 and 2009. At December 31, 2010 and 2009, the Company had outstanding loan commitments and unused lines of credit totaling $18,484,000 and $12,497,000, respectively. Management placed a high probability for required funding within one year of approximately $10.2 million as of December 31, 2010. Approximately $7.1 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 3.7% in 2010 entirely from current year earnings after quarterly dividends, and a 2.7% decrease in accumulated other comprehensive income. The decrease 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 2010 follows an increase of 3.8% in 2009 entirely from current earnings after quarterly dividends combined with an increase of 3.4% resulting from the effect of the change in the net unrealized gains (losses) on available for sale investment securities. Stockholders’ equity amounted to 11.2% and 11.4% of total assets at December 31, 2010 and 2009, respectively. The Company paid dividends of $.73 per share in 2010 and 2009. As of December 31, 2010, First West Virginia Bancorp, Inc. had 271 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 18 of the Consolidated Financial Statements.

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
2010	High	$	17.48	$	16.26	$	16.76	$	17.49
2010	Low	$	11.50	$	13.23	$	13.26	$	13.65
2009	High	$	12.85	$	12.64	$	12.61	$	12.80
2009	Low	$	8.42	$	10.65	$	10.06	$	10.94

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.

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 positive at approximately $12,511,000, which indicates the Company’s earning assets reprice sooner than interest bearing liabilities at December 31, 2010. 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, 2010 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 4.5%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 2.1%. 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, 2010


(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	$	5,310		$	-		$	-		$	-		$	4,623		$	9,933
Investment securities		8,690			26,103			32,485			64,292			1,599			133,169
Loans		20,163			42,018			38,509			15,927			4,750			121,367
Other assets		4,845			-			-			-			10,704			15,549
Allowance for loan losses		-			-			-			-			(2,059	)		(2,059	)

Total assets	$	39,008		$	68,121		$	70,994		$	80,219		$	19,617		$	277,959


LIABILITIES AND CAPITAL
NOW and savings accounts	$	27,063		$	2,775		$	7,112		$	69,597		$	-		$	106,547
Money Market Accounts (MMDA’s)		9,116			-			5,128			-			-			14,244
Certificates of deposit < $100,000		10,789			18,696			18,616			7,912			-			56,013
Certificates of deposit > $100,000		3,979			8,640			6,499			4,233			-			23,351

Noninterest bearing demand deposits		-			-			-			-			28,320			28,320
Federal funds purchased and repurchase agreements		13,477			-			-			-			-			13,477
FHLB borrowings		21			62			178			3,515			-			3,776
Other liabilities		-			-			-			-			1,130			1,130
Stockholders’ equity		-			-			-			-			31,101			31,101

Total liabilities and capital	$	64,445		$	30,173		$	37,533		$	85,257		$	60,551		$	277,959


GAP		(25,437	)		37,948			33,461			(5,038	)		(40,934	)

GAP/ Total Assets		(9.15	)%		13.65	%		12.04	%		(1.81	)%		(14.73	)%

Cumulative GAP		(25,437	)		12,511			45,972			40,934			0

Cumulative GAP/Total Assets		(9.15	)%		4.50	%		16.54	%		14.73	%		0.00	%

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


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 Treasurer, James H. Emblem Co. 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. 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 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 Thomas L. Sable Managing Partner, The Summit Atlantic Group, LLC Clerk/Treasurer, Village of Bellaire	William G. Petroplus Attorney at Law Member/Partner Petroplus & Gaudino Member, GWP Realty, LLC Francie P. Reppy Executive Vice President and Chief Financial Officer Chief Administrative Officer and Treasurer, First West Virginia Bancorp, Inc. Executive Vice President and Chief Financial Officer Chief Administrative Officer, Progressive Bank, N.A. Brad D. Winwood Vice President and Chief Operating Officer and Investment Officer, First West Virginia Bancorp, Inc. Senior Vice President, Chief Operating Officer and Investment Officer, Progressive Bank, N.A.


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 Chief Operating Officer and Investment Officer	Connie R. Tenney Vice President Deborah A. Kloeppner Secretary Nada E. Beneke Assistant Secretary

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 Brad D. Winwood Senior Vice President, Chief Operating Officer & Investment Officer Connie R. Tenney Senior Vice President	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 Ron E. Michaux Assistant Vice President Business Development Officer Mark D. Nicholson Assistant Vice President Business Development Officer	Richard Silverio, Jr. Assistant Vice President Business Development Officer Laura A. Schmidt Assistant Vice President Accounting Officer Virginia L. Shutler Financial Analyst Kerrie Weisenborn Accounting Officer Debra M. Banfi 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 Vickie D. Poling Loan Officer Susan M. Scotka Human Resource Manager	Amanda M. Schnelle Bank Secrecy & OFAC Officer Beth A. Heyman Office Manager Bethlehem/ Bellaire Nancy J. Farley Office Manager New Martinsville Angie Pasco Office Manager Warwood Michele L. Thatcher Office Manager Moundsville 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) 218-2458

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

Upon written request any shareholder of record on December 31, 2010, may obtain a copy of the Corporation’s 2010 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 31, 2011) 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 www.progbank.com in the section entitled “Investor Relations” or at the Securities and Exchange’s website at www.sec.gov.

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III:

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available.