Exhibit 13.1

 

P.O. Box 6671

Wheeling, WV 26003

TO OUR SHAREHOLDERS:

I am pleased for the opportunity to present to you the financial performance results contained in the 2014 Annual Report of First West Virginia Bancorp, Inc. In 2014, consolidated net income was $1,903,905 or $1.11 per share as compared to $2,241,048 or $1.30 per share for the year ended December 31, 2013. The Company’s balance sheet showed consolidated assets of $332,390,474 and $342,145,227 at December 31, 2014 and 2013, respectively. Total stockholders’ equity increased 13.3% in 2014 to $34,871,592 as compared to $30,790,036 reported in 2013. The return on average assets was .57% and .71% as of December 31, 2014 and 2013, respectively. The return on average equity was 5.64% and 6.87% at December 31, 2014 and 2013, respectively. The book value per share was $20.29 at December 31, 2014 as compared to $17.91 a year earlier. The Board of Directors declared and paid cash dividends of $.80 in 2014 as compared to $.76 per share in 2013.

In November 2014, the Company’s subsidiary bank, Progressive Bank, N.A. opened our newly constructed Warwood full service branch office in Wheeling, West Virginia. Our investment in the new branch office demonstrates the bank’s continued commitment to our community. This new state-of-the-art facility enables us to serve all of our customers’ financial needs.

In 2014, the Company strengthened its Board of Directors by the election of the following directors: Jonathan A. Bedway, Dr. Clyde D. Campbell, Rosalie J. Dlesk, Robert J. Fitzsimmons, Joseph M. Menendez, Roberta Robinson Olejasz, and Brian L. Schambach. I am confident their expertise, professionalism, and ties to the business community will enhance our Board.

Furthermore, our Board of Directors has asked me and I have agreed to serve as President and Chief Executive Officer of both the Company and Progressive Bank, N.A., its wholly-owned banking subsidiary. I remain dedicated to leading the Company in a positive direction and seeking new opportunities for income and growth.

I would be remiss not to express my sincere gratitude to our Company’s senior management, officers, and employees who remain such a vital part of our future plans, to our Board of Directors for their unfailing leadership, and to our customers and shareholders for their continued loyalty and support.

Our Company’s overall financial performance and capital position remain strong. We feel we are poised with strategies and goals in place that will allow us to capitalize on the new opportunities and challenges that present themselves in 2015.

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

 

		December 31,
		2014				2013
ASSETS
Cash and due from banks		$	5,348,554			$	6,530,981
Due from banks - interest bearing			15,047,846				25,343,994
Total cash and cash equivalents			20,396,400				31,874,975
Investment securities:
Available-for-sale (at fair value)			197,078,938				199,955,367
Loans			99,216,428				93,401,845
Less allowance for loan losses			(1,812,739	)			(1,864,788	)
Net loans			97,403,689				91,537,057
Premises and equipment, net			8,413,049				7,000,590
Accrued income receivable			1,014,979				1,168,483
Goodwill			1,644,119				1,644,119
Bank owned life insurance			3,840,167				3,732,439
Other assets			2,599,133				5,232,197
Total assets		$	332,390,474			$	342,145,227
LIABILITIES
Noninterest bearing deposits:
Demand		$	41,555,690			$	55,906,673
Interest bearing deposits:
Demand			55,458,847				54,812,380
Savings			112,756,169				108,070,929
Time			62,371,914				67,086,776
Total deposits			272,142,620				285,876,758
Federal funds purchased and securities sold under agreements to repurchase			21,051,231				20,215,183
Federal Home Loan Bank borrowings			3,420,312				3,515,580
Accrued interest payable			120,272				134,389
Other liabilities			784,447				1,613,281
Total liabilities			297,518,882				311,355,191
COMMITMENTS AND CONTINGENT LIABILITIES
Commitments and contingent liabilities			-				-
STOCKHOLDERS’ EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,728,730 shares issued at December 31, 2014 and 2013			8,643,650				8,643,650
Treasury stock - 10,000 shares at cost			(228,100	)			(228,100	)
Surplus			6,966,020				6,966,020
Retained earnings			18,655,475				18,126,554
Accumulated other comprehensive income (loss)			834,547				(2,718,088	)
Total stockholders’ equity			34,871,592				30,790,036
Total liabilities and stockholders’ equity		$	332,390,474			$	342,145,227

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME

 

		Year Ended December 31,
		2014				2013
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable		$	4,303,621			$	4,697,926
Tax-exempt			499,091				463,993
Debt securities:
Taxable			2,880,574				2,265,161
Tax-exempt			1,813,662				1,910,891
Other interest and dividend income			103,781				76,078
Total interest and dividend income			9,600,729				9,414,049
INTEREST EXPENSE
Deposits			1,111,430				1,212,174
Federal funds purchased and repurchase agreements			171,478				141,956
Federal Home Loan Bank borrowings			166,316				170,308
Total interest expense			1,449,224				1,524,438
Net interest income			8,151,505				7,889,611
PROVISION (CREDIT) FOR LOAN LOSSES			-				(400,000	)
Net interest income after provision (credit) for loan losses			8,151,505				8,289,611
NONINTEREST INCOME
Service charges and other fees			374,476				407,660
Net gains on available for sale securities			868,530				379,997
Other-than-temporary losses on securities:
Total other-than-temporary losses			(49,318	)			-
Portion of loss recognized in other comprehensive income (before taxes)			-				-
Net impairment losses recognized in earnings			(49,318	)			-
Other operating income			682,946				652,224
Total noninterest income			1,876,634				1,439,881
NONINTEREST EXPENSE
Salary and employee benefits			3,925,361				3,734,956
Net occupancy expense of premises			1,688,779				1,616,903
Other operating expenses			2,445,379				2,319,847
Total noninterest expense			8,059,519				7,671,706
Income before income taxes			1,968,620				2,057,786
INCOME TAX EXPENSE (BENEFIT)			64,715				(183,262	)
Net income		$	1,903,905			$	2,241,048
WEIGHTED AVERAGE SHARES OUTSTANDING			1,718,730				1,718,730
EARNINGS PER COMMON SHARE		$	1.11			$	1.30
DIVIDENDS PER COMMON SHARE		$	0.80			$	0.76

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

		Year Ended December 31,
		2014				2013
Net Income		$	1,903,905			$	2,241,048
Other comprehensive income (loss):
Investment securities available for sale
Unrealized holding gains (losses) arising during the period			6,515,274				(8,995,586	)
Income tax effect			(2,451,698	)			3,385,039
Reclassification of gains recognized in earnings			(819,212	)			(379,997	)
Income tax effect			308,271				142,993
Total other comprehensive income (loss)			3,552,635				(5,847,551	)
Comprehensive income (loss)		$	5,456,540			$	(3,606,503	)

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

		Common Stock								Treasury Stock				Surplus				Retained Earnings				Accumulated Other Compre- hensive Income (loss)				Total
		Shares				Amount
BALANCE, DECEMBER 31, 2012			1,728,730			$	8,643,650			($	228,100	)		$	6,966,020			$	17,191,740			$	3,129,463			$	35,702,773
Net income			-				-				-				-				2,241,048				-				2,241,048
Other comprehensive loss, net			-				-				-				-				-				(5,847,551	)			(5,847,551	)
Cash dividend ($.76 per share)			-				-				-				-				(1,306,234	)			-				(1,306,234	)
BALANCE, DECEMBER 31, 2013			1,728,730				8,643,650				(228,100	)			6,966,020				18,126,554				(2,718,088	)			30,790,036
Net income			-				-				-				-				1,903,905				-				1,903,905
Other comprehensive income, net			-				-				-				-				-				3,552,635				3,552,635
Cash dividend ($.80 per share)			-				-				-				-				(1,374,984	)			-				(1,374,984	)
BALANCE, DECEMBER 31, 2014			1,728,730			$	8,643,650			($	228,100	)		$	6,966,020			$	18,655,475			$	834,547			$	34,871,592

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Year Ended December 31,
		2014				2013
OPERATING ACTIVITIES
Net income		$	1,903,905			$	2,241,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision (credit) for loan losses			-				(400,000	)
Depreciation and amortization			605,715				564,194
Amortization of investment securities, net			476,740				440,984
Investment security gains			(868,530	)			(379,997	)
Other-than-temporary losses on securities			49,318				-
Net gains on sales of mortgage loans			(1,893	)			(14,175	)
Loss on disposal of premises and equipment			6,246				11,652
Gain on sale of other real estate owned			(42,466	)			-
Increase in cash surrender value of bank-owned life insurance			(107,728	)			(107,426	)
Originations of mortgage loans held for sale			(85,168	)			(395,500	)
Proceeds from sales of mortgage loans			87,061				519,475
Decrease (increase) in interest receivable			153,504				(40,543	)
Decrease in interest payable			(14,117	)			(28,209	)
Increase in deferred taxes			(43,637	)			(67,560	)
Other, net			595,304				(510,760	)
Net cash provided by operating activities			2,714,254				1,833,183
INVESTING ACTIVITIES
Net decrease (increase) in loans, net of charge-offs			(6,079,330	)			5,973,706
Recoveries on loans previously charged-off			5,164				95,130
Proceeds from sales of securities available-for-sale			22,604,447				7,613,182
Proceeds from maturities, prepayments, and calls of securities available-for-sale			23,203,652				35,554,422
Purchases of securities available-for-sale			(37,784,000	)			(73,460,702	)
Purchases of premises and equipment			(2,024,420	)			(1,076,780	)
Proceeds from the sale of foreclosed assets			250,000				-
Net cash provided by (used in) investing activities			175,513				(25,301,042	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits			(13,734,138	)			39,414,795
Dividends paid			(1,374,984	)			(1,306,234	)
Increase in short-term borrowings			836,048				1,448,593
Repayment of Federal Home Loan Bank borrowings			(95,268	)			(90,831	)
Net cash provided by (used in) financing activities			(14,368,342	)			39,466,323
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(11,478,575	)			15,998,464
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			31,874,975				15,876,511
CASH AND CASH EQUIVALENTS, END OF YEAR		$	20,396,400			$	31,874,975
Supplemental Disclosures:
Cash Paid for Interest		$	1,463,341			$	1,552,647
Cash Paid for Income Taxes			138,496				25,000
Loans Transferred to Other Real Estate Owned			207,534				-

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

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting and reporting policies applied in the presentation of the accompanying consolidated 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, valuation of deferred tax assets, other-than-temporary impairments (OTTI), and fair values of financial instruments.

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. At December 31, 2014, the Company’s cash accounts exceeded federally insured limits by approximately $1,019,000. Additionally, the Company had approximately $13,879,000 on deposit with the Federal Reserve Bank and the Federal Home Loan Bank of Pittsburgh as of December 31, 2014, which is not federally insured.

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, 2014 and 2013, 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.

Federal Reserve and Federal Home Loan Bank stock are required investments for institutions that are members of the Federal Reserve and Federal Home Loan Bank systems. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

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. A nonaccrual loan 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. Loans are considered past due when contractually required principal and interest payments have not been made on the due dates. 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. The Company had no loans held for sale as of December 31, 2014 and 2013.

Consumer loans are fully charged off or charged down to net realizable value when deemed uncollectible due to bankruptcy or other factors or no later than a defined number of days past due. Consumer loans not secured by real estate are charged off or charged down to net realizable value at 120 days past due for closed-end loans and 180 days past due for open-end loans. Residential real estate loans are charged down to net realizable value at 120 days past due for closed-end loans and 180 days past due for open-end loans. Commercial loans are fully charged off or charged down to net realizable value when management judges the loan to be uncollectible.

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Loans and Loans Held for Sale: (Continued)

 

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, 2013 provides for a maximum commitment of $5,000,000. This commitment expires on December 28, 2015. 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 $8,501,093 and $9,489,935 as of December 31, 2014 and 2013, respectively. These loans were also subject to recourse obligation or credit risk in the amount of $322,594 and $342,602 at December 31, 2014 and 2013, respectively. No liability has been recorded for the recourse obligation as the likelihood of incurring the liability is considered remote. The amount of income recognized as of a result of this agreement was $25,074 and $34,312 for the years ending December 31, 2014 and 2013, respectively.

Allowance for Loan Losses: The allowance for loan losses represents the amount which management estimates is adequate to provide for probable incurred 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 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.

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. Payments received on nonaccrual loans are applied as a reduction of the loan principal balance. 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 in the case of collateral dependent 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 less estimated liquidation expenses.

Individual loan reviews are based upon specific quantitative and qualitative criteria, including the size of the loan, loan quality ratings, value of collateral, repayment ability of borrowers, and historical experience factors. The historical experience factors utilized for individual loan reviews are based upon past loss experience, known trends in losses and delinquencies, the growth of loans in particular markets and industries, and known changes in economic conditions in the particular lending markets. Allowances for homogeneous loans (such as residential mortgage loans, personal loans, etc.) are evaluated based upon historical loss experience, trends in losses and delinquencies, growth of loans in particular markets, and known changes in economic conditions in each lending market. There can be no assurance the allowance for loan losses will be adequate to cover all losses, but management believes the allowance for loan losses in the amount of $1,812,739 at December 31, 2014, 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.

 

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Goodwill: Goodwill resulted from the Company’s purchase of a less-than-whole financial institution (the “branch”). The goodwill value of $1,644,119 is supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods.

Goodwill is periodically reviewed for impairment. No impairment losses were recognized in 2014 and 2013. 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.

Mortgage Servicing Rights (“MSRs”): The Company has agreements for the express purpose of selling loans in the secondary market. The Company maintains all servicing rights for these loans. Originated MSRs are recorded by allocating total costs incurred between the loan and servicing rights based on their relative fair values. MSRs are amortized in proportion to the estimated servicing income over the estimated life of the servicing portfolio. Impairment is evaluated based on the fair value of the right, based on portfolio interest rates and prepayment characteristics.

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 $3,840,167 and $3,732,439 at December 31, 2014 and 2013, respectively. The death benefit value of the bank-owned life insurance at December 31, 2014 and 2013 was $8.8 million. An agreement has been executed with all officers whereby a $40,000 death benefit is payable upon the participant’s death while employed by the Company to their designated beneficiary.

Advertising Costs: Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $187,283 and $216,744 for 2014 and 2013, respectively.

Premises and Equipment: Land is carried at cost. 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.

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. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

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.

 

 

9

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements: In January 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-01, Income Statement-Extraordinary and Unusual Items, Subtopic 225-20: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The FASB issued this ASU as part of its initiative to reduce complexity in accounting standards. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement-Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations, Topic 805: Pushdown Accounting. The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. An election to apply pushdown accounting in a reporting period after the reporting period in which the change-in-control event occurred should be considered a change in accounting principle in accordance with Topic 250, Accounting Changes and Error Corrections. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. If an acquired entity elects the option to apply pushdown accounting in its separate financial statements, it should disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting. The amendments in this update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern, Subtopic 204-40: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this update are effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this update require entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), eliminates accounting guidance on linking repurchase financing transactions, and expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers, such as repos, securities lending transactions, and repurchase-to-maturity transactions, accounted for as secured borrowings. The amendments in ASU 2014-11 are effective for annual periods beginning after December 15, 2014. The amendments must present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is prohibited. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The amendments in this update supersede virtually all existing GAAP revenue recognition guidance, including most industry-specific revenue recognition guidance. ASU 2014-09 creates a single, principle-based revenue recognition framework and will require entities to apply significantly more judgment and expanded disclosures surrounding revenue recognition. The core principle requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to contracts with customers to provide goods and services, with certain exclusions such as lease contracts, financing arrangements, and financial instruments. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, to reduce diversity by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements.

 

10

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities are as follows at December 31, 2014 and 2013:

 

		(Expressed in thousands) December 31, 2014
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies		$	44,595			$	13			$	(602	)		$	44,006
Obligations of states and political subdivisions			40,349				2,144				(71	)			42,422
Mortgage-backed securities			110,626				818				(1,001	)			110,443
Equity securities			171				38				(1	)			208
Total available-for-sale		$	195,741			$	3,013			$	(1,675	)		$	197,079
		December 31, 2013
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Securities available-for-sale:
Obligations of U.S. Government corporations and agencies		$	50,598			$	18			$	(2,170	)		$	48,446
Obligations of states and political subdivisions			60,049				1,421				(1,056	)			60,414
Mortgage-backed securities			93,501				72				(2,673	)			90,900
Equity securities			165				32				(2	)			195
Total available-for-sale		$	204,313			$	1,543			$	(5,901	)		$	199,955

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2014 and 2013, was approximately $92,305,000 and $145,017,000, which is approximately 46.8% and 72.5%, respectively, of the Company’s available-for-sale investment portfolio.

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.

The unrealized losses on the Company’s investments in direct obligations of U.S. government corporations and agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2014.

The unrealized losses on the Company’s investments in residential mortgage-backed securities were caused by interest rate increases. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2014.

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2014.

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 until 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 53 positions that are temporarily impaired at December 31, 2014.

 

11

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

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, 2014 and 2013:

 

		(Expressed in thousands) 2014
		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		$	5,486			$	(9	)		$	36,006			$	(593	)		$	41,492			$	(602	)
Obligations of states and political subdivisions			766				(7	)			5,000				(64	)			5,766				(71	)
Mortgage-backed securities			7,193				(12	)			37,835				(989	)			45,028				(1,001	)
Total debt securities			13,445				(28	)			78,841				(1,646	)			92,286				(1,674	)
Equity securities			19				(1	)			-				-				19				(1	)
Total		$	13,464			$	(29	)		$	78,841			$	(1,646	)		$	92,305			$	(1,675	)
		(Expressed in thousands) 2013
		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		$	46,416			$	(2,170	)		$	-			$	-			$	46,416			$	(2,170	)
Obligations of states and political subdivisions			19,009				(867	)			1,794				(189	)			20,803				(1,056	)
Mortgage-backed securities			65,915				(2,036	)			11,805				(637	)			77,720				(2,673	)
Total debt securities			131,340				(5,073	)			13,599				(826	)			144,939				(5,899	)
Equity securities			70				(1	)			8				(1	)			78				(2	)
Total		$	131,410			$	(5,074	)		$	13,607			$	(827	)		$	145,017			$	(5,901	)

The following is a tabular rollforward of the amount of credit related OTTI recognized in earnings (in thousands):

 

		December 31,
		2014				2013
Balance at beginning of period		$	-			$	-
Additions for credit-related OTTI not previously recognized			49				-
Reductions for securities sold during the period (realized)			(49	)			-
Balance at end of period		$	-			$	-

No other-than-temporary impairment losses were recognized in accumulated other comprehensive income as of December 31, 2014 and 2013.

 

12

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

 

The amortized cost and fair value of investment securities at December 31, 2014, 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 Available-for-Sale
		Amortized Cost				Fair Value
Due in one year or less		$	605			$	608
Due after one year through five years			25,093				25,024
Due after five years through ten years			39,281				39,449
Due after ten years			19,965				21,347
			84,944				86,428
Mortgage-backed securities			110,626				110,443
Equity securities			171				208
Total		$	195,741			$	197,079

Proceeds from sales of securities available-for-sale during the years ended December 31, 2014 and 2013, were $22,604,447 and $7,613,182, respectively. Gross gains of $905,543 and gross losses of $37,013 in 2014 and gross gains of $380,338 and gross losses of $341 in 2013, were realized on those sales. Assets carried at $63,856,000 and $65,339,000 at December 31, 2014 and 2013, respectively, were pledged to secure United States Government and other public funds and for other purposes as required or permitted by law.

NOTE 3 - LOANS AND LEASES

Loans outstanding at December 31, 2014 and 2013, are as follows:

 

		(Expressed in Thousands)
		2014				2013
Consumer Real Estate:
Construction		$	3,519			$	487
Farmland			93				136
Residential 1-4 family			23,737				23,275
Home equity loans			1,207				1,665
Home equity lines of credit			3,966				3,684
Total Consumer Real Estate			32,522				29,247
Commercial Real Estate:
Non-farm, non-residential			37,411				35,345
Multifamily (5 or more) residential properties			9,538				8,762
Total Commercial Real Estate			46,949				44,107
Commercial and Other Loans:
Commercial			5,720				5,489
Non-rated industrial development obligations			11,384				11,200
Other loans			19				36
Total Commercial and Other Loans			17,123				16,725
Consumer Loans:
Installment and other loans to individuals			2,261				2,921
Credit cards			503				535
Total Consumer Loans			2,764				3,456
Total Loans			99,358				93,535
Less unearned interest and deferred fees			141				133
Gross Loans			99,217				93,402
Less allowance for loan losses			1,813				1,865
Net Loans		$	97,404			$	91,537

 

13

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 - LOANS AND LEASES (CONTINUED)

 

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. Credit risk is driven by factors such as the creditworthiness of a borrower and general economic conditions in the Company’s market area that might impact the borrower’s personal income, employment, or collateral value. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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. Credit risk in these loans is driven by the creditworthiness of the borrower and the economic conditions that impact the cash flow stability from business operations. 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.

Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of the borrower, property values and the economic conditions in the Company’s market areas.

Non-accrual loans amounted to $1,032,228 and $1,270,447 at December 31, 2014 and 2013, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $63,435 and $84,793 for 2014 and 2013, respectively.

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

 

		December 31, 2014
		Current				30-59 Days Past Due				60-89 Days Past Due				90 Days or More Past Due				Total Past Due				Total Loans				90 Days or More Past  Due and Accruing
Commercial and other loans		$	17,078			$	6			$	-			$	39			$	45			$	17,123			$	-
Commercial real estate			46,246				-				13				690				703				46,949				-
Consumer real estate			32,384				71				-				67				138				32,522				-
Consumer			2,742				5				3				14				22				2,764				14
Unearned interest and deferred fees			(141	)			-				-				-				-				(141	)			-
Total loans		$	98,309			$	82			$	16			$	810			$	908			$	99,217			$	14
Non-accrual loans included above are as follows:
Commercial and other loans		$	-			$	-			$	-			$	39			$	39			$	39			$	-
Commercial real estate			-				-				13				690				703				703				-
Consumer real estate			223				-				-				67				67				290				-
Consumer			-				-				-				-				-				-				-
Total non-accrual loans		$	223			$	-			$	13			$	796			$	809			$	1,032			$	-

 

14

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 - LOANS AND LEASES (CONTINUED)

 

		December 31, 2013
		Current				30-59 Days Past Due				60-89 Days Past Due				90 Days or More Past Due				Total Past Due				Total Loans				90 Days or More Past  Due and Accruing
Commercial and other loans		$	16,693			$	10			$	-			$	22			$	32			$	16,725			$	-
Commercial real estate			43,244				159				-				704				863				44,107				-
Consumer real estate			28,994				168				9				76				253				29,247				-
Consumer			3,451				4				-				1				5				3,456				-
Unearned interest and deferred fees			(133	)			-				-				-				-				(133	)			-
Total loans		$	92,249			$	341			$	9			$	803			$	1,153			$	93,402			$	-
Non-accrual loans included above are as follows:
Commercial and other loans		$	4			$	-			$	-			$	22			$	22			$	26			$	-
Commercial real estate			22				159				-				704				863				885				-
Consumer real estate			146				124				9				76				209				355				-
Consumer			-				3				-				1				4				4				-
Total non-accrual loans		$	172			$	286			$	9			$	803			$	1,098			$	1,270			$	-

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Risk ratings are assigned to individual credit exposures as an aspect of the credit approval and are adjusted thereafter to reflect changes in risk exposure as the borrower’s condition changes. The most significant factor used to determine the risk rating is the borrower’s primary source of repayment which includes a cash flow analysis. Other items considered in the loan review include secondary sources of repayment, financial trends, collateral value and characteristics, the size of the loan, and external factors impacting the borrower’s repayment ability.

Loans rated as “Pass” include those that have minimal, modest, acceptable, and higher risk. Minimal risk loans are fully secured by marketable securities or cash collateral, or loans supported by the United States Treasury. Modest risk loans have borrowers with stable cash flows over an extended period of time and extensive access to credit from several sources. Acceptable risk loans include individual borrowers with substantial liquid assets and commercial borrowers with strong cash flow. Higher risk loans have adequate sources of repayment and no current identifiable risk for repayment and loans that are slightly below average due to any number of factors such as income, collateral, or the lack of sufficient financial information.

Problem and potential problem loans are classified as “Special Mention,” “Substandard,” and “Doubtful.” Substandard loans are inadequately protected by the current worth and paying capacity of the borrower or the collateral pledged, if any. These loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt and are 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.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed as of December 31, 2014 and 2013 (in thousands):

 

December 31, 2014		Pass				Special Mention				Substandard				Doubtful				Total
Commercial and other		$	17,084			$	-			$	39			$	-			$	17,123
Commercial real estate			41,679				1,170				4,100				-				46,949
Construction and farmland			3,262				-				350				-				3,612
Total		$	62,025			$	1,170			$	4,489			$	-			$	67,684
December 31, 2013		Pass				Special Mention				Substandard				Doubtful				Total
Commercial and other		$	16,675			$	-			$	50			$	-			$	16,725
Commercial real estate			35,302				3,936				4,869				-				44,107
Construction and farmland			272				-				351				-				623
Total		$	52,249			$	3,936			$	5,270			$	-			$	61,455

 

 

15

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 - LOANS AND LEASES (CONTINUED)

 

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, 2014 and 2013 (in thousands):

 

2014		Performing				Non-performing				Total
Consumer		$	2,750			$	14			$	2,764
Consumer real estate			28,620				290				28,910
Total		$	31,370			$	304			$	31,674
2013		Performing				Non-performing				Total
Consumer		$	3,452			$	4			$	3,456
Consumer real estate			28,269				355				28,624
Total		$	31,721			$	359			$	32,080

The Company also evaluates problem loans for impairment. A loan is considered to be impaired if it is probable that the Company will not be able to collect the payments for principal and interest when due according to the contractual terms of the loan agreement. Impaired loans generally include all non-accrual loans and troubled debt restructurings (TDRs).

Year-end impaired loans are set forth in the following tables (in thousands):

 

		December 31, 2014
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance
Commercial and other loans		$	39			$	-			$	39			$	39			$	39
Commercial real estate			744				474				270				744				78
Consumer real estate			493				143				350				493				9
Consumer			18				-				11				11				1
Total		$	1,294			$	617			$	670			$	1,287			$	127
		December 31, 2013
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance
Commercial and other loans		$	36			$	4			$	32			$	36			$	32
Commercial real estate			930				378				552				930				136
Consumer real estate			231				231				-				231				-
Total		$	1,197			$	613			$	584			$	1,197			$	168

 

16

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 - LOANS AND LEASES (CONTINUED)

 

		December 31, 2014
		Average Recorded Investment				Interest Income Recognized				Interest Income Recognized Cash Basis
Commercial and other loans		$	27			$	-			$	-
Commercial real estate			809				2				-
Consumer real estate			368				13				-
Consumer			3				1				-
Total		$	1,207			$	16			$	-
		December 31, 2013
		Average Recorded Investment				Interest Income Recognized				Interest Income Recognized Cash Basis
Commercial and other loans		$	28			$	-			$	-
Commercial real estate			2,157				1				-
Consumer real estate			230				-				-
Total		$	2,415			$	1			$	-

Loan Modifications

The Company’s loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonaccrual at the time of restructure and may only be returned to accrual status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs on accrual status may remain in accrual status after they have been restructured as long as they continue to perform in accordance with their modified terms. There were two TDRs in accrual status at December 31, 2014 and one at December 31, 2013.

When the Company modifies a loan, management evaluates any possible impairment based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized by segment or class of loan, as applicable, through an allowance estimate or a charge-off to the allowance. Segment and class status is determined by the loan’s classification at origination.

The following tables include the recorded investment and number of modifications for new TDRs, as of the respective dates. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured (in thousands):

 

		December 31, 2014												December 31, 2013
		Number of Contracts				Pre- Modification Outstanding Recorded Investment				Post Modification Outstanding Recorded Investment				Number of Contracts				Pre- Modification Outstanding Recorded Investment				Post Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial and other loans			-			$	-			$	-				-			$	-			$	-
Commercial real estate			-				-				-				1				46				46
Consumer real estate			1				350				350				-				-				-
Total			1			$	350			$	350				1			$	46			$	46
Troubled Debt Restructurings That Subsequently Defaulted Within 12 Months After Restructuring
Commercial and other loans			-			$	-			$	-				-			$	-			$	-
Commercial real estate			-				-				-				-				-				-
Consumer real estate			1				350				350				-				-				-
Total			1			$	350			$	350				-			$	-			$	-

 

 

17

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 - LOANS AND LEASES (CONTINUED)

 

The following tables include new troubled debt restructurings by type of modification (in thousands).

 

		December 31, 2014
		Interest Only				Term				Combination				Total Modification
Troubled Debt Restructurings
Commercial and other loans		$	-			$	-			$	-			$	-
Commercial real estate			-				-				-				-
Consumer real estate			-				350				-				350
Total		$	-			$	350			$	-			$	350
		December 31, 2013
		Interest Only				Term				Combination				Total Modification
Troubled Debt Restructurings
Commercial and other loans		$	-			$	-			$	-			$	-
Commercial real estate			-				46				-				46
Consumer real estate			-				-				-				-
Total		$	-			$	46			$	-			$	46

There were funds of $32,903 and $5,711 committed to be advanced to customers whose loans were classified as TDRs at December 31, 2014 and 2013, respectively.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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, 2014 and 2013 (in thousands):

 

2014		Commercial and Other				Commercial Real Estate				Consumer Real Estate				Consumer				Total
Allowance for Loan Losses:
Beginning Balance		$	260			$	1,315			$	263			$	27			$	1,865
Charge-offs			(5	)			(36	)			-				(16	)			(57	)
Recoveries			-				-				-				5				5
Provision			26				(25	)			-				(1	)			-
Ending Balance		$	281			$	1,254			$	263			$	15			$	1,813
Loans individually evaluated for impairment		$	39			$	78			$	9			$	1			$	127
Loans collectively evaluated for impairment			242				1,176				254				14				1,686
Ending Balance		$	281			$	1,254			$	263			$	15			$	1,813

 

18

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)

 

2013		Commercial and Other				Commercial Real Estate				Consumer Real Estate				Consumer				Total
Allowance for Loan Losses:
Beginning Balance		$	179			$	1,762			$	193			$	47			$	2,181
Charge-offs			-				-				-				(12	)			(12	)
Recoveries			-				84				-				12				96
Provision			81				(531	)			70				(20	)			(400	)
Ending Balance		$	260			$	1,315			$	263			$	27			$	1,865
Loans individually evaluated for impairment		$	32			$	136			$	-			$	-			$	168
Loans collectively evaluated for impairment			228				1,179				263				27				1,697
Ending Balance		$	260			$	1,315			$	263			$	27			$	1,865

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014 and 2013 (in thousands):

 

2014		Commercial and Other				Commercial Real Estate				Consumer Real Estate				Consumer				Unearned Discounts				Total
Loans individually evaluated		$	39			$	744			$	493			$	11			$	-			$	1,287
Loans collectively evaluated			17,084				46,205				32,029				2,753				(141	)			97,930
Ending Balance		$	17,123			$	46,949			$	32,522			$	2,764			$	(141	)		$	99,217
2013
Loans individually evaluated		$	36			$	930			$	231			$	-			$	-			$	1,197
Loans collectively evaluated			16,689				43,177				29,016				3,456				(133	)			92,205
Ending Balance		$	16,725			$	44,107			$	29,247			$	3,456			$	(133	)		$	93,402

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment are stated at cost, less accumulated depreciation, as follows (in thousands):

 

		December 31,								Original Useful  Life Years
		2014				2013
Land		$	1,984			$	1,984
Land improvements			419				404			5 - 20
Leasehold improvements			1,087				1,083			5 - 20
Buildings			6,998				5,364			5 - 50
Furniture, fixtures & equipment			4,228				4,756			3 - 30
Total			14,716				13,591
Less accumulated depreciation			6,303				6,590
Premises and equipment, net		$	8,413			$	7,001

Charges to operations for depreciation approximated $605,715 and $564,194 for 2014 and 2013, respectively.

 

19

---

First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 6 - DEPOSITS

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

 

		(Expressed in Thousands) 2014
		Demand
		Noninterest Bearing				Interest Bearing				Savings				Time
Individuals, partnerships and corporations (includes certified and official checks)		$	41,102			$	48,583			$	108,108			$	59,400
States and political subdivisions			384				6,876				4,617				2,490
Commercial banks and other depository institutions			70				-				31				482
Total		$	41,556			$	55,459			$	112,756			$	62,372
		(Expressed in Thousands) 2013
		Demand
		Noninterest Bearing				Interest Bearing				Savings				Time
Individuals, partnerships and corporations (includes certified and official checks)		$	55,234			$	49,356			$	104,077			$	64,128
States and political subdivisions			601				5,456				3,963				2,478
Commercial banks and other depository institutions			72				-				31				481
Total		$	55,907			$	54,812			$	108,071			$	67,087

Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $21,348,000 and $22,249,000 at December 31, 2014 and 2013, respectively. Interest expense on certificates of deposit of $100,000 or more was $264,000 and $288,000 at December 31, 2014 and 2013, respectively.

The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 2014 (in thousands):

 

Due in three months or less		$	4,870
Due in over three through six months			3,123
Due in over six through twelve months			4,515
Due in over twelve months			8,840
Total		$	21,348

A maturity distribution of time certificates of deposit at December 31, 2014, follows (in thousands):

 

Due in 2015		$	35,151
Due in 2016			13,213
Due in 2017			6,215
Due in 2018			4,252
Due in 2019			3,522
Due in 2020 and thereafter			19
Total		$	62,372

 

20

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

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
		2014				2013				2014				2013
Balance at end of year		$	21,051,231			$	20,215,183			$	-			$	-
Average balance during the year			20,803,203				19,137,272				282				10,970
Maximum month-end balance			23,409,716				22,736,128				-				-
Weighted-average rate during the year			.82	%			.74	%			1.00	%			.30	%
Rate at December 31			.86	%			.76	%			-				-

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, 2014 was approximately $37.2 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $3,420,312 and $3,515,580 at December 31, 2014 and 2013, respectively. At December 31, 2014 the subsidiary bank had three fixed rate amortizing advances which totaled $3,420,312 with interest rates ranging from 4.65% to 4.89%. Two of these advances totaling $1,922,434 at December 31, 2014 will mature in 2018 and one advance totaling $1,497,878 at December 31, 2014 will mature in 2023. The collateral securing these borrowings totaled $3,565,538 at December 31, 2014.

The bank also has a line of credit agreement with the Federal Home Loan Bank which matures on May 1, 2015. The maximum credit available is $19.8 million under the agreement. There were no borrowings outstanding under this agreement at December 31, 2014 and December 31, 2013, respectively.

Contractual maturities of FHLB borrowings as of December 31, 2014 were as follows (in thousands):

 

December 31, 2015		$	99
December 31, 2016			105
December 31, 2017			110
December 31, 2018			1,760
December 31, 2019			43
Thereafter			1,303
		$	3,420

 

21

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 9 - 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 its 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:

 

		2014				2013
Commitments to extend credit		$	22,883,000			$	27,096,000
Standby letters of credit			272,000				219,000

As of December 31, 2014, approximately $12,073,000 are fixed interest rate commitments and $10,810,000 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 $90,000 expire in 2015 and $182,000 expire in 2021. 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 and results of operations of the Company.

NOTE 10 - CONCENTRATIONS OF CREDIT RISK

Most of the affiliate Bank’s loans and commitments have been granted to customers in the Bank’s primary market area of Northern and Central West Virginia, Eastern Ohio, and Southwestern Pennsylvania. In the normal course of business, however, the Bank has purchased participations and originated loans outside of its primary market area. The aggregate loan balances outstanding in any one geographic area, other than the Bank’s primary lending areas, do not exceed 10 percent of total loans. Concentrations of credit are measured by categorizing loans by the North American Industry Classification codes. Loans equal to or exceeding 25% of Tier I Capital are considered concentrations of credit. At December 31, 2014 concentrations of credit were as follows:

 

		Amount				Percent of Tier 1 Capital
Lessors of Nonresidential Buildings		$	12,219,442			39.6%
Lessors of Residential Buildings and Dwellings		$	9,790,236			31.7%
General Government Support		$	9,411,713			30.5%

NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company has a non-contributory profit sharing plan for employees meeting certain service requirements. The Company makes annual contributions to the profit sharing plan based on income of the Company as defined. Total expenses for the plan were $113,075 and $102,251 for the years ended December 31, 2014 and 2013, respectively.

The Company also offers a 401(k) plan in which it matches a portion of the employee’s contribution up to 4 percent of their salary. The expense related to the 401(k) plan was $22,896 and $22,456 in 2014 and 2013, respectively.

 

22

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 12 - RELATED PARTY TRANSACTIONS

Directors and officers of the Company and its subsidiary, and their associates, were customers of, and had other transactions with the subsidiary bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility. Such loans totaled $3,139,252 at December 31, 2014, and $350,592 at December 31, 2013.

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

 

		December 31,
		2014				2013
Balance, January 1		$	350,592			$	3,306,412
New loans during the period			2,914,785				215,795
Repayments during the period			(126,125)				(3,171,615)
Ending balance		$	3,139,252			$	350,592

Deposits from related parties held by the subsidiary at December 31, 2014 totaled $2,109,313.

Dlesk Realty and Investment Company, which is owned by the late Mr. Sylvan J. Dlesk and his wife Rosalie J. Dlesk, serves as landlord to the Company’s subsidiary bank, under a lease agreement to rent property for use as banking premises. The lease was for an initial 5 year term at an annual rental fee of $57,600. This lease was renewed in 2012 and in 2007 for an additional 5-year term at an annual rental fee of $63,504 and $60,480, respectively and has options to renew for six 5-year terms.

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, 2014 and 2013, were $2,849,000 and $6,058,000, respectively.

NOTE 14 - 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, 2014, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:

 

December 31, 2015		$	220,404
December 31, 2016			213,204
December 31, 2017			49,092
December 31, 2018			36,000
December 31, 2019			36,000
Thereafter			126,000

Rental expense under operating leases approximated $219,504 in 2014 and $226,537 in 2013.

NOTE 15 - OTHER OPERATING EXPENSES

Other operating expenses at December 31 included the following:

 

		2014				2013
Directors’ fees		$	152,275			$	99,625
Stationery and supplies			141,429				150,280
Regulatory assessment and deposit insurance			293,014				274,897
Advertising			187,283				216,744
Postage and transportation			160,512				172,996
Other taxes			99,448				146,264
Service expense			521,904				428,850
Other			889,514				830,191
Total		$	2,445,379			$	2,319,847

 

23

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 16 - 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 2015, without approval of the Comptroller of the Currency, of approximately $1,500,000, plus an additional amount equal to the bank’s net profit for 2015 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 17 - INCOME TAX

The provision (credit) for income taxes includes these components:

 

		2014				2013
Currently payable:
Federal		$	57,571			$	(130,581	)
State			50,781				14,879
Deferred:
Federal			(32,777	)			(130,766	)
State			(10,860	)			63,206
Income tax expense (benefit)		$	64,715			$	(183,262	)

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

 

		2014				2013
Allowance for loan losses		$	714,992			$	732,689
Deferred loan fees			48,070				45,189
Accrued interest on nonperforming loans			212,080				202,119
Deferred compensation			58,436				59,119
Depreciation			(192,642	)			(223,962	)
Amortization			16,429				30,511
Goodwill			(298,134	)			(260,867	)
AMT			1,199,542				1,005,207
Deferred state income tax			(35,856	)			(32,164	)
Federal NOL			92,700				-
Total deferred tax asset - federal			1,815,617				1,557,841
Total deferred tax asset - state			105,460				94,599
			1,921,077				1,652,440
Deferred tax assets (liabilities) arising from market adjustments of securities available for sale:
Federal			(429,917	)			1,400,227
State			(73,593	)			239,690
Net deferred tax asset before valuation allowance			1,417,567				3,292,357
Valuation Allowance
Beginning balance			-				-
Increase during the period			(225,000	)			-
Ending balance			(225,000	)			-
Net deferred tax asset		$	1,192,567			$	3,292,357

As of December 31, 2014, the Company had approximately $1,199,542 of alternative minimum tax credits available to offset future federal income taxes. The credits have no expiration date.

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:

 

		2014								2013
		Amount				Percent				Amount				Percent
Computed tax at statutory federal rate		$	669,331				34.0%			$	699,647				34.0%
Plus state income taxes net of federal tax benefits			22,874				1.2%				55,974				2.7%
			692,205				35.2%				755,621				36.7%
Increase (decrease) in taxes resulting from:
Tax exempt income			(787,536	)			(40.0)%				(808,389	)			(39.3)%
Nondeductible interest expense			17,286				0.9%				20,324				1.0%
Bank-owned life insurance			(36,628	)			(1.9)%				(36,525	)			(1.8)%
Changes in the deferred tax asset valuation allowance			76,500				3.9%				-				-
Other - net			102,888				5.2%				(114,293	)			(5.5)%
Actual tax expense (benefit)		$	64,715				3.3%			$	(183,262	)			(8.9)%

 

24

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The activity in accumulated other comprehensive income (loss) at December 31 is as follows:

 

		Accumulated Other Comprehensive Income (Loss) (1)
(dollars in thousands)		Unrealized Gains (Losses) on Securities Available for Sale
		Year Ended December 31,
		2014				2013
Beginning Balance		$	(2,718)			$	3,129
Other comprehensive income (loss) before reclassifications			4,064				(5,610	)
Amounts reclassified from accumulated other comprehensive income			(511	)			(237	)
Period Change			3,553				(5,847	)
Ending Balance		$	835			$	(2,718	)

 

(1)	All amounts are net of tax. Related income tax expense or benefit is calculated using a combined Federal and State income tax rate approximating 39.5%.

 

		Amount Reclassified from Accumulated Other Comprehensive Income  (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components		For the Year Ended December 31,								Affected Line Item in the Statement of Income
(dollars in thousands)		2014				2013
Securities available for sale (1):
Net securities gains reclassified into earnings		$	(868	)		$	(380	)		Net securities gains
Other-than-temporary losses classified into earnings			49				-			Other-than-temporary losses on investments
Related income tax expense			308				143			Provision for income taxes
Net effect on accumulated other comprehensive income (loss) for the period		$	(511	)		$	(237	)		Net of tax
Total reclassifications for the period		$	(511	)		$	(237	)		Net of tax

 

(1)	For additional detail related to unrealized gains on securities and related amounts reclassified from accumulated other comprehensive income (loss) see Note 2 “Investment Securities.”

 

25

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 19 - REGULATORY MATTERS

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated 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, 2014, 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:

 

(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, 2014
Total Capital (to Risk Weighted Assets)		$	32,857				21.37%			$	12,300				8.0%			$	15,375				10.0%
Tier I Capital (to Risk Weighted Assets)			31,044				20.19%				6,150				4.0%				9,225				6.0%
Tier I Capital (to Adjusted Total Assets)			31,044				9.34%				13,291				4.0%				16,614				5.0%
As of December 31, 2013
Total Capital (to Risk Weighted Assets)		$	33,748				21.43%			$	12,600				8.0%			$	15,750				10.0%
Tier I Capital (to Risk Weighted Assets)			31,883				20.24%				6,300				4.0%				9,450				6.0%
Tier I Capital (to Adjusted Total Assets)			31,883				9.32%				13,686				4.0%				17,108				5.0%
Progressive Bank, N.A.
As of December 31, 2014
Total Capital (to Risk Weighted Assets)		$	32,700				21.29%			$	12,290				8.0%			$	15,362				10.0%
Tier I Capital (to Risk Weighted Assets)			30,887				20.11%				6,145				4.0%				9,217				6.0%
Tier I Capital (to Adjusted Total Assets)			30,887				9.30%				13,280				4.0%				16,600				5.0%
As of December 31, 2013
Total Capital (to Risk Weighted Assets)		$	33,577				21.35%			$	12,580				8.0%			$	15,725				10.0%
Tier I Capital (to Risk Weighted Assets)			31,712				20.17%				6,290				4.0%				9,435				6.0%
Tier I Capital (to Adjusted Total Assets)			31,712				9.28%				13,676				4.0%				17,095				5.0%

NOTE 20 - 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:

 

•		Level I:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
•		Level II:		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.

 

26

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 20 - FAIR VALUE MEASUREMENTS - (CONTINUED)

 

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include observable inputs employed by certified appraisers or an internal evaluator for similar assets classified as Level III inputs adjusted for qualitative factors and estimated liquidation expenses.

The following table presents the assets reported on the balance sheet at their fair value as of December 31, 2014 and December 31, 2013, 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, 2014
(dollars in thousands)		Level I				Level II				Level III				Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies		$	-			$	44,006			$	-			$	44,006
Obligations of states and political subdivisions			-				42,422				-				42,422
Mortgage-backed securities			-				110,443				-				110,443
Equity securities			208				-				-				208
Total securities available for sale:		$	208			$	196,871			$	-			$	197,079
Assets measured on a nonrecurring basis:
Impaired loans		$	-			$	-			$	503			$	503
		December 31, 2013
(dollars in thousands)		Level I				Level II				Level III				Total
Assets measured on a recurring basis:
Securities available for sale:
U.S. Government corporations and agencies		$	-			$	48,446			$	-			$	48,446
Obligations of states and political subdivisions			-				60,414				-				60,414
Mortgage-backed securities			-				90,900				-				90,900
Equity securities			195				-				-				195
Total securities available for sale:		$	195			$	199,760			$	-			$	199,955
Assets measured on a nonrecurring basis:
Impaired loans		$	-			$	-			$	372			$	372
Mortgage servicing rights		$	-			$	-			$	1			$	1

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Level III inputs were used in determining fair value.

 

(dollars in thousands)		Quantitative Information about Level III Fair Value  Measurements
December 31, 2014		Fair Value Estimate				Valuation Techniques		Unobservable Input		Range (Weighted Average)
Impaired Loans		$	503			Appraisal of collateral (1)		Appraisal adjustments (2)		-30.0% to 0.0% (-11.5%)
								Liquidation expenses (2)		0.0% to 9.0% (8.8%)
(dollars in thousands)		Quantitative Information about Level III Fair Value  Measurements
December 31, 2013		Fair Value Estimate				Valuation Techniques		Unobservable Input		Range (Weighted Average)
Impaired Loans		$	372			Appraisal of collateral (1)		Appraisal adjustments (2)		0%
								Liquidation expenses (2)		15.8% to 23.1% (20.5%)
Mortgage Servicing Rights		$	1			Discounted cash flow		Prepayment rate (3)		7.8% to 17.2% (10.5%)
								Discount rate		9.5%

 

27

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)

 

(1)	The fair value is determined through independent appraisals by certified appraisers or internal evaluators of the underlying collateral.

(2)

Appraisals and evaluations may be adjusted by management for qualitative factors and estimated liquidation expenses. The range and weighted average of liquidation expenses are expressed as a percent of discounted collateral value and other appraisal adjustments are presented as a percentage of the appraised amounts.

(3)	Conditional prepayment rates reflect future long-run prepayment estimates by bond dealers for the nation as a whole as well as the Company’s actual prepayment history. Prepayment rates are highly sensitive to market interest rates.

Collateral-dependent Impaired Loans

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level III of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate and prepayment speed. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level III of the hierarchy. Mortgage servicing rights are tested for impairment on an annual basis.

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 Available-for-sale: Where quoted market prices are available in an active market, securities are classified within Level I of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters. Such securities are classified in Level II of the valuation hierarchy.

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.

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 based on the discounted value of cash flows after estimating the weighted average remaining term and adding estimated wholesale borrowing costs to the rate. The fair values for time deposits are based on the discounted value of cash flows.

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 Borrowings: The discounted cash flow method is used to estimate the fair value of Federal Home Loan Bank borrowings.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates its 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.

 

28

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)

 

The estimates of fair values of financial instruments are summarized as follows at December 31, 2014 and December 31, 2013:

 

		December 31, 2014
(Amounts Expressed in Thousands)						Estimated Fair Value
		Carrying Amount				Level I				Level II				Level III				Total
Financial assets:
Cash and cash equivalents		$	20,396			$	20,396			$	-			$	-			$	20,396
Investment securities			197,079				208				196,871				-				197,079
Loans			97,404				-				-				98,445				98,445
Accrued interest receivable			1,015				1,015				-				-				1,015
Financial liabilities:
Deposits			272,143				199,444				62,289				-				261,733
Federal funds purchased and repurchase agreements			21,051				21,051				-				-				21,051
Federal Home Loan Bank borrowings			3,420				-				3,714				-				3,714
Accrued interest payable			120				120				-				-				120
		December 31, 2013
(Amounts Expressed in Thousands)						Estimated Fair Value
		Carrying Amount				Level I				Level II				Level III				Total
Financial assets:
Cash and cash equivalents		$	31,875			$	31,875			$	-			$	-			$	31,875
Investment securities			199,955				195				199,760				-				199,955
Loans			91,537				-				-				91,413				91,413
Accrued interest receivable			1,168				1,168				-				-				1,168
Financial liabilities:
Deposits			285,877				195,135				67,308				-				262,443
Federal funds purchased and repurchase agreements			20,215				20,215				-				-				20,215
Federal Home Loan Bank borrowings			3,516				-				3,917				-				3,917
Accrued interest payable			134				134				-				-				134

NOTE 22 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

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

CONDENSED BALANCE SHEETS

 

		December 31,
		2014				2013
ASSETS
Cash		$	170,076			$	58,364
Investment securities available-for-sale (at fair value)			207,986				203,965
Investment in subsidiary bank			34,714,750				30,619,466
Other assets			101,238				85,214
Total assets		$	35,194,050			$	30,967,009
LIABILITIES
Deferred compensation		$	171,869			$	173,879
Accrued expenses			6,881				3,094
Other liabilities			143,708				-
Total liabilities			322,458				176,973
STOCKHOLDERS’ EQUITY			34,871,592				30,790,036
Total liabilities and stockholders’ equity		$	35,194,050			$	30,967,009

 

29

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

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

 

CONDENSED STATEMENTS OF INCOME

 

		Year Ended December 31,
		2014				2013
INCOME
Dividends from subsidiary bank		$	1,378,104			$	1,317,528
Gains (losses) on sales of investment securities			(47	)			6,757
Other income			181,312				121,161
Total income			1,559,369				1,445,446
EXPENSES
Other expenses			224,508				181,186
Total expenses			224,508				181,186
Income before income taxes and undistributed net income of subsidiary			1,334,861				1,264,260
Income tax benefit			22,633				23,176
Equity in undistributed net income of subsidiary			546,411				953,612
NET INCOME		$	1,903,905			$	2,241,048

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

		Year Ended December 31,
		2014				2013
Net Income		$	1,903,905			$	2,241,048
Other comprehensive income (loss):
Investment securities available for sale
Unrealized holding gains arising during the period			5,987				15,443
Income tax effect			(2,253	)			(5,811	)
Reclassification of losses (gains) recognized in earnings			47				(6,757	)
Income tax effect			(18	)			2,543
Equity in other comprehensive income (loss) of subsidiary			3,548,872				(5,852,969	)
Total other comprehensive income (loss)		$	3,552,635			$	(5,847,551	)
Comprehensive income (loss)		$	5,456,540			$	(3,606,503	)

 

30

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First West Virginia Bancorp, Inc. and Subsidiary

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

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

 

CONDENSED STATEMENTS OF CASH FLOWS

 

		Year Ended December 31,
		2014				2013
OPERATING ACTIVITIES
Net income		$	1,903,905			$	2,241,048
Adjustments to reconcile net income to net cash provided by operating activities:
Change in deferred tax benefit			(28,369	)			7,387
Undistributed earnings of affiliate			(546,411	)			(953,612	)
Changes in operating assets and liabilities:
Other assets			10,076				7,540
Deferred compensation			(2,009	)			(19,629	)
Other liabilities			147,495				625
Net losses (gains) on sales of investment securities			47				(6,757	)
Net cash provided by operating activities			1,484,734				1,276,602
INVESTING ACTIVITIES
Proceeds from sales of securities			29,054				90,875
Purchases of investment securities			(27,092	)			(64,489	)
Net cash provided by investing activities			1,962				26,386
FINANCING ACTIVITIES
Dividends paid			(1,374,984	)			(1,306,234	)
Net cash used in financing activities			(1,374,984	)			(1,306,234	)
Net increase (decrease) in cash and cash equivalents			111,712				(3,246	)
Cash and cash equivalents at beginning of year			58,364				61,610
Cash and cash equivalents at end of year		$	170,076			$	58,364

 

31

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

In order to ensure that the Company’s internal control over financial reporting is effective, management is required to evaluate, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and did so most recently for its financial reporting as of December 31, 2014. 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 in 2013. Based on this assessment, management has concluded that the internal control over financial reporting was effective as of December 31, 2014. This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to 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.

 

Date: March 27, 2015		/s/ William G. Petroplus
		William G. Petroplus, President and Chief Executive Officer
Date: March 27, 2015		/s/ Francie P. Reppy
		Francie P. Reppy, Executive Vice President, Chief Administrative Officer and Chief Financial Officer

 

32

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Audit Committee, Board of Directors and Stockholders

First West Virginia Bancorp, Inc.

Wheeling, West Virginia

We have audited the accompanying consolidated balance sheets of First West Virginia Bancorp, Inc. (Company) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits included consideration of internal control over financial reporting as a basis for designing auditing 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. Our audits also included 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 and 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. as of December 31, 2014, and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ BKD, LLP

BKD, LLP

Indianapolis, Indiana

March 27, 2015

 

33

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Table One

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)

 

 

 

		December 31,
		2014				2013				2012				2011				2010
SUMMARY OF OPERATIONS
Total interest income		$	9,601			$	9,414			$	9,838			$	11,207			$	11,858
Total interest expense			1,449				1,524				1,789				2,229				3,056
Net interest income			8,152				7,890				8,049				8,978				8,802
Provision (credit) for loan losses			-				(400	)			(248	)			600				220
Total other income			1,877				1,440				2,352				2,034				1,977
Total other expenses			8,060				7,672				7,604				7,626				7,723
Income before income taxes			1,969				2,058				3,045				2,786				2,836
Net income			1,904				2,241				2,538				2,454				2,339
PER SHARE DATA (1)
Net income		$	1.11			$	1.30			$	1.48			$	1.43			$	1.36
Cash dividends declared			0.80				0.76				0.73				0.73				0.70
Book value per share			20.29				17.91				20.77				20.09				18.10
AVERAGE BALANCE SHEET SUMMARY
Total loans, net		$	94,103			$	97,374			$	104,566			$	115,415			$	124,074
Investment securities			199,571				177,809				154,755				136,409				116,990
Deposits - interest bearing			230,440				218,229				208,308				204,616				198,042
Stockholders’ equity			33,767				32,597				31,608				30,498				29,415
Total assets			335,515				316,172				293,601				283,734				273,778
BALANCE SHEET
Investments		$	197,079			$	199,955			$	178,208			$	150,961			$	133,169
Loans			99,217				93,402				99,387				109,428				121,367
Allowance for loan losses			(1,813	)			(1,865	)			(2,181	)			(2,504	)			(2,059	)
Other assets			37,907				50,653				31,133				35,373				25,482
Total Assets		$	332,390			$	342,145			$	306,547			$	293,258			$	277,959
Deposits		$	272,143			$	285,877			$	246,462			$	239,177			$	228,475
Federal funds purchased and repurchase agreements			21,051				20,215				18,767				14,013				13,477
FHLB borrowings			3,420				3,516				3,606				3,693				3,776
Other liabilities			904				1,747				2,009				1,848				1,130
Stockholders’ equity			34,872				30,790				35,703				34,527				31,101
Total Liabilities and Stockholders’ Equity		$	332,390			$	342,145			$	306,547			$	293,258			$	277,959
SELECTED RATIOS
Return on average assets			0.57	%			0.71	%			0.86	%			0.86	%			0.85	%
Return on average equity			5.64	%			6.87	%			8.03	%			8.05	%			7.95	%
Average equity to average assets			10.06	%			10.31	%			10.77	%			10.75	%			10.74	%
Dividend payout ratio (1)			72.07	%			58.46	%			49.32	%			51.05	%			51.47	%
Loan to deposit ratio			36.46	%			32.67	%			40.33	%			45.75	%			53.12	%

 

(1)	Adjusted for the 4 percent common stock dividend to stockholders of record as of December 19, 2012 and the 4 percent common stock dividend to stockholders of record as of December 20, 2010.

 

34

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First West Virginia Bancorp, Inc.

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

 

Forward-Looking Information: Certain information contained in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties. These statements are subject to important factors that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing regional and national economic conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to the parent company and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform; competitive conditions in the financial services industry; rapidly changing technology affecting financial services, and/or other external developments materially impacting the Company’s operational and financial performance. The Company does not assume any duty to update forward-looking statements.

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 Investment Securities: Investment 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: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill balance, we would be required to take a charge against earnings to write down the asset 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, 2014 and 2013. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.

The Company reported net income of $1,903,905 or $1.11 per share for the year ended December 31, 2014 as compared to $2,241,048 or $1.30 per share for the year ended December 31, 2013. The decrease in net income during 2014 over 2013 of $337,143 or 15.0% was primarily the result of the increase in the provision for loan losses, increase in noninterest expense, and change in income tax benefit to income tax expense, offset in part by an increase in net interest income and noninterest income. The Company recorded a negative provision for loan losses in 2013 in the amount of $400,000 to reduce the allowance for loan losses based upon the decline in specific reserves required on nonperforming assets. No provision was recorded in 2014. Noninterest expenses increased $387,813 or 5.1% in 2014 over 2013 primarily due to the increase in salary and employee benefit costs, occupancy expenses, and other operating expenses. Net interest income increased $261,894 or 3.3% in 2014 as compared to 2013 primarily due to the increase in the interest earned on investment securities and the decrease in the interest expense paid on interest bearing liabilities, offset in part by the decrease in the interest earned on loans. Noninterest income increased $436,753 or 30.3% primarily due to the increase in the net gains on sales of investment securities and other operating income, offset in part by the decrease in service charges and fees earned on deposit accounts. The return on average assets was .57% and .71% as of December 31, 2014 and 2013, respectively. The return on average equity was 5.64% and 6.87% at December 31, 2014 and 2013, respectively. The Board of Directors declared and paid cash dividends of $.80 and $.76 per share during 2014 and 2013, respectively.

 

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

 

 

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

Table 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, 2014, 2013, and 2012. Average balance sheet information as of December 31, 2014, 2013, and 2012 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, 2014												December 31, 2013												December 31, 2012
		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		$	48,546			$	864				1.78	%		$	45,502			$	800				1.76	%		$	38,891			$	733				1.88	%
Mortgage backed securities			101,232				1,963				1.94	%			80,261				1,458				1.82	%			71,597				1,689				2.36	%
States and political subdivisions
Taxable			1,076				46				4.28	%			-				-				-				-				-				-
Non-taxable			48,551				1,814				3.74	%			51,868				1,911				3.68	%			44,136				1,735				3.93	%
Other securities			166				7				4.22	%			178				7				3.93	%			131				5				3.82	%
Total Investment securities:			199,571				4,694				2.35	%			177,809				4,176				2.35	%			154,755				4,162				2.69	%
Interest bearing deposits			20,098				51				0.25	%			20,935				53				0.25	%			13,937				34				0.24	%
Loans, net of unearned income			94,103				4,803				5.10	%			97,374				5,162				5.30	%			104,566				5,625				5.38	%
Other earning assets			1,215				53				4.36	%			1,323				23				1.74	%			1,265				17				1.34	%
Total earning assets			314,987				9,601				3.05	%			297,441				9,414				3.17	%			274,523				9,838				3.58	%
Other assets			20,528												18,731												19,078
Total Assets		$	335,515											$	316,172											$	293,601
LIABILITIES
Time deposits		$	64,914			$	677				1.04	%		$	69,086			$	823				1.19	%		$	71,563			$	1,118				1.56	%
Savings deposits			111,752				369				0.33	%			99,789				330				0.33	%			90,875				318				0.35	%
Interest bearing demand deposits			53,774				66				0.12	%			49,354				59				0.12	%			45,870				56				0.12	%
Federal funds purchased and repurchase agreements			20,804				171				0.82	%			19,148				142				0.74	%			17,411				122				0.70	%
FHLB and other long-term borrowings			3,467				166				4.79	%			3,560				170				4.78	%			3,649				175				4.80	%
Total interest bearing liabilities			254,711				1,449				0.57	%			240,937				1,524				0.63	%			229,368				1,789				0.78	%
Noninterest bearing demand deposits			46,507												42,061												31,724
Other liabilities			530												577												901
Total Liabilities			301,748												283,575												261,993
STOCKHOLDERS’ EQUITY			33,767												32,597												31,608
Total Liabilities and Stockholders’ Equity		$	335,515											$	316,172											$	293,601
Net yield on earning assets						$	8,152				2.59	%						$	7,890				2.65	%						$	8,049				2.93	%
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 2014, 2013, and 2012, respectively. The effect of this adjustment is presented below.
Investment securities		$	199,571			$	5,903				2.96	%		$	177,809			$	5,450				3.07	%		$	154,755			$	5,319				3.44	%
Loans			94,103				5,135				5.46	%			97,374				5,471				5.62	%			104,566				5,935				5.68	%
Total earning assets		$	314,987			$	11,142				3.54	%		$	297,441			$	10,997				3.70	%		$	274,523			$	11,305				4.12	%
Taxable equivalent net yield on earning assets						$	9,693				3.08	%						$	9,473				3.18	%						$	9,516				3.47	%

 

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

 

 

EARNINGS ANALYSIS

Net Interest Income

Net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities, is the primary source of earnings for the Company. Changes in the volume and mix of earning assets and interest bearing liabilities combined with changes in market rates of interest greatly affect net interest income. Tables Two and Three analyze the changes in net interest income for the two years ended December 31, 2014 and 2013.

Net interest income increased $261,894 or 3.3% in 2014 compared to 2013, and followed a decrease in 2013 of $159,658 or 2.0% from 2012. During 2014, the increase in net interest income was primarily due to the increase in the interest earned on investment securities and the decrease in the interest paid on deposits and other borrowings, offset in part by the decrease in the interest earned on loans and the increase in the interest paid on repurchase agreements. The decrease in net interest income in 2013 was primarily due to the decrease in the interest earned on loans and the increase in the interest paid on repurchase agreements, offset in part by the decrease in the interest paid on deposits and other borrowings and the increase in the interest earned on investment securities. The changes in the volume and mix of earning assets and interest bearing liabilities combined with the changes in the market rates of interest resulted in taxable equivalent net interest yields on average earning assets of 3.08% for 2014, as compared to 3.18% earned during 2013.

Interest and fees on loans decreased $359,207 or 7.0% from 2013 to 2014, after decreasing $463,536 or 8.2% from 2012 to 2013. Interest and fees on loans declined in 2014 as compared to 2013 primarily as a result of the decrease in the average volume of loans due to a lack of customer demand combined with the decline in the yield earned on loans. The taxable equivalent yield on loans declined 16 basis points in 2014, from 5.62% in 2013 to 5.46% in 2014, and followed a decrease of 6 basis points in 2013, from 5.68% in 2012 to 5.62% in 2013. The average loan volume decreased $3.3 million or 3.4% in 2014 as compared to 2013 and followed a decrease of $7.2 million or 6.9% in 2013 as compared to 2012. In 2013, the decline in interest and fees on loans was primarily due to the decrease in the average volume of loans combined with the decline in the yield earned on loans.

Interest income on investment securities in 2014 increased $518,184 or 12.4% over 2013, and followed an increase of $13,729 or .3% over 2012. Due to the lack of loan growth in 2014, excess funds were invested resulting in an increase in the average volume of investment securities. This increase in volume, which was partially offset by the decrease in the yield earned on investment securities, primarily contributed to the increase in interest income on investment securities. The taxable equivalent yield on investment securities fell 11 basis points in 2014, from 3.07% in 2013 to 2.96% in 2014, and followed a decrease in 2013 of 37 basis points, from 3.44% in 2012 to 3.07% in 2013. The activity of the investment securities portfolio increased with the average volume increasing $21.8 million or 12.2% in 2014 as compared to 2013, and followed an increase of $23.1 million or 14.9% in 2013 as compared to 2012. In 2013, the increase in the average volume of investment securities which was partially offset by the decrease in the yield earned on investment securities primarily contributed to the increase in interest income on investment securities.

Interest expense in 2014 decreased $75,214 or 4.9% from 2013, compared to the decrease of $264,858 or 14.8% from 2012 to 2013. In 2014, the decline in interest expense was primarily due to the declines in the yield and average volume of time deposits as customers moved funds to more liquid deposit products with lower interest rates. The decline in interest expense in 2013 was primarily due to the declines in the yield and average volume of time deposits, the decline in the average volume of Federal Home Loan Bank borrowings and the decline in the yield on savings deposits, offset in part by a rise in the average volume of savings deposits, interest bearing demand deposits, and repurchase agreements. The average yield paid on interest bearing liabilities during 2014 fell 6 basis points, from .63% in 2013 to .57% in 2014, and followed a decrease in 2013 of 15 basis points, from .78% in 2012 to .63% in 2013. The average volume of interest bearing liabilities increased $13.8 million or 5.7% in 2014 compared to 2013, after increasing $11.6 million or 5.0% in 2013 as compared to 2012.

Noninterest Income

Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $436,753 or 30.3% in 2014 as compared to a decrease of $911,731 or 38.8% in 2013. The increase in noninterest income in 2014 as compared to 2013 was primarily due to the increase in the net gains on sales of investment securities and other operating income, offset in part by the decrease in service charges and other fee income. In 2013, noninterest income decreased primarily due to the decrease in the net gains on sales of investment securities combined with the decrease in other operating income and service charges and other fee income.

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 amounted to $868,530 in 2014, an increase of $488,533 as compared to 2013. 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 2014, the Company accounted for securities gains of $905,543 and securities losses of $37,013 which were attributable to sales of securities available for sale. In 2013, the Company accounted for securities gains of $380,338 and securities losses of $341 which were attributable to sales of securities available for sale. The sales of investment securities in 2014 and 2013 were primarily due to the Company’s deferred tax asset strategy. Additional information on the deferred tax asset is contained under the Income Taxes section on page 39.

Service charges and other fees are earned from assessments made on checking and savings accounts. This income decreased $33,184 in 2014, down 8.1%, from 2013, as compared to the decrease of $45,183 or 10.0% from 2012 to 2013. The decrease in service charges in 2014 and 2013 was primarily due to a decline in overdraft charges combined with a decrease in service charges on deposit accounts due to customer activity.

 

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

 

 

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

The effect on interest income and interest expense for the years ended December 31, 2014 and 2013 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)		2014 Compared to 2013												2013 Compared to 2012
		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		$	53			$	11			$	64			$	125			$	(58	)		$	67
Mortgage backed securities			381				124				505				204				(435	)			(231	)
Obligations of states and political subdivisions			(83	)			32				(51	)			304				(128	)			176
Other securities			-				-				-				2				-				2
Total investment securities			351				167				518				635				(621	)			14
Interest bearing deposits			(2	)			-				(2	)			17				2				19
Loans, net of unearned income			(173	)			(186	)			(359	)			(387	)			(76	)			(463	)
Other earning assets			(2	)			32				30				1				5				6
Total interest earned			174				13				187				266				(690	)			(424	)
INTEREST EXPENSE ON:
Time deposits			(50	)			(96	)			(146	)			(38	)			(257	)			(295	)
Savings deposits			40				(1	)			39				31				(19	)			12
Interest bearing demand deposits			5				2				7				4				(1	)			3
Federal funds purchased and repurchase agreements			12				17				29				12				8				20
FHLB and other long-term borrowings			(4	)			-				(4	)			(4	)			(1	)			(5	)
Total interest paid			3				(78	)			(75	)			5				(270	)			(265	)
Net interest differential		$	171			$	91			$	262			$	261			$	(420	)		$	(159	)
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 2014 and 2013, respectively.
Investment securities		$	667			$	(214	)		$	453			$	792			$	(661	)		$	131
Loans			(184	)			(152	)			(336	)			(408	)			(56	)			(464	)
Total interest earned		$	479			$	(334	)		$	145			$	402			$	(710	)		$	(308	)
Net interest differential		$	476			$	(256	)		$	220			$	397			$	(440	)		$	(43	)

 

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

 

 

Noninterest Income (Continued)

 

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 amounted to $682,946 in 2014, an increase of $30,722 as compared to 2013. The increase in other operating income in 2014 was primarily the result of the gain recorded on the sale of other real estate owned and the increase in ATM fees, offset in part by declines in the income earned on loans sold to the FHLB and from sales of checkbooks. Other operating income amounted to $652,224 in 2013, a decrease of $155,842 as compared to 2012. During 2013, the decrease in other operating income was primarily due to declines in the income earned on loans sold to the FHLB, nonrecurring gains on sales of assets, ATM fees, and miscellaneous income.

Noninterest Expense

Noninterest expenses are comprised of salaries and employee benefits, net occupancy expense of premises and other operating expenses. In 2014, noninterest expenses increased $387,813 or 5.1% over 2013, and followed an increase of $67,547 or .9% in 2013 over 2012. The increase in noninterest expense in 2014 as compared to 2013 was primarily due to the increase in salary and employee benefit costs, occupancy expenses, and other operating expenses. The increase in noninterest expense in 2013 as compared to 2012 was primarily due to the increase in occupancy expenses, offset in part by the decrease in other operating expenses and salary and employee benefit costs.

Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $190,405 or 5.1% in 2014 over 2013. The increase in salary and employee benefit expense in 2014 was primarily a result of increases in salary expenses due to additional employees as well as a slight increase in employee benefit expenses due to a rise in health insurance costs. During 2013, salary and employee benefits decreased $5,030 or .1% as compared to the same period in 2012. The decrease in salary and employee benefit expense in 2013 was primarily attributable to reductions in salary expenses, offset in part by an increase in employee benefit expenses. The Company had 96 and 91 full-time equivalent employees at December 31, 2014 and 2013, respectively.

Occupancy expenses increased $71,876 or 4.4% in 2014 over 2013, and followed an increase of $89,286 or 5.8% in 2013 over 2012. Occupancy expenses increased in 2014 primarily due to increases in furniture and fixture expense and depreciation expenses related to significant information technology purchases and the newly constructed Warwood branch as well as increases for insurance on bank premises and expenses related to other real estate owned, offset in part by decreases in real estate taxes, building maintenance expenses, utilities, and land lease expenses. The increase in occupancy expenses in 2013 was primarily due to increases in building maintenance expenses, depreciation expenses, real estate taxes, and insurance on bank premises, offset in part by decreases in land and banking house lease expenses.

The major components of other operating expenses include: stationery and supplies, directors’ fees, service expense, postage and transportation, other taxes, advertising, and regulatory assessments and deposit insurance. Other operating expenses increased $125,532 or 5.4% in 2014 as compared to the same period of the prior year. The increase in other operating expenses was primarily due to increases in service expenses, director fees, and regulatory assessments, offset in part by decreases in other taxes, advertising, postage and transportation, and stationary and supplies expenses. During 2013, other operating expenses decreased $16,709 or .7% over 2012 primarily due to decreases in service expenses, stationary and supplies expense, and other taxes, offset in part by an increase in postage and transportation expenses and other miscellaneous expenses.

Income Taxes

Income tax expense for the period ended December 31, 2014 was $64,715, an increase of $247,977 or 135.3% over the 2013 benefit as compared to the decrease in the expense of $690,224 or 136.1% from 2012 to 2013. During 2014, the increase in taxable income, decrease in tax exempt income, and recording of a valuation allowance against the deferred tax asset primarily contributed to the increase in income tax expense. The decrease in taxable income and the increase in tax exempt income primarily contributed to the change in income tax expense to benefit in 2013. Components of the income tax expense for December 31, 2014 were an expense of $30,058 for federal taxes and $34,657 for West Virginia corporate net income taxes. Federal income tax rates were consistent at 34% for the years ended December 31, 2014 and 2013. West Virginia corporate net income tax rates were 6.50% and 7.00% for the years ended December 31, 2014 and 2013, respectively.

Under U.S. GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. A valuation allowance was recorded in 2014 due to the Company’s concern that a deferred federal tax asset may not be realized. The determination of the realizability of the deferred tax asset is highly subjective and dependent on judgement. At December 31, 2014, the valuation allowance was considered to be adequate based on the Company’s projections of future taxable income and tax planning strategies. Additional information regarding income taxes is contained in Note 17 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 $2,312,753 in 2014 and $2,374,884 in 2013. 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 $1,065,000 in 2014 and $1,056,000 in 2013.

 

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

 

 

BALANCE SHEET ANALYSIS

Investments

Investment securities decreased $2,876,429 or 1.4% during 2014, and followed an increase in 2013 of $21,747,393 or 12.2% from 2012. 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 79.6% of total securities at December 31, 2014, as compared to 69.8% at December 31, 2013. Due to the Company’s current deferred tax asset position, the purchase strategy is focused on taxable versus non-taxable investment securities. 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 decreased 1.4% from 2013, and represented 100% of the investment portfolio at December 31, 2014. The decrease in the available for sale securities was primarily due to the proceeds from sales, maturities, prepayments, and calls of available for sale securities being more than purchases, offset in part by the change in value from an unrealized loss position to an unrealized gain position. The Company did not have any investment securities classified as held to maturity securities at December 31, 2014 and 2013. 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 were above book value by $1,338,057 at December 31, 2014 and below book value by $4,358,005 at December 31, 2013.

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, 2014, 2013, and 2012 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. 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.

The Company’s subsidiary bank sold non-taxable state and political subdivision securities with an amortized cost of approximately $21.7 million during 2014 in order to reinvest in mortgage backed investment securities and taxable securities of state and political subdivisions in accordance with the Company’s deferred tax asset plan.

 

(dollars in thousands)		December 31, 2014												December 31, 2013												December 31, 2012
		Amortized Cost				Fair Value				Yield				Amortized Cost				Fair Value				Yield				Amortized Cost				Fair Value				Yield
U.S. Government corporations and agencies
Within One Year		$	1			$	1				0.01	%		$	9			$	9				0.01	%		$	10			$	10				0.01	%
After One But Within Five Years			22,095				21,899				1.58				7,490				7,416				1.81				6,000				6,034				1.88
After Five But Within Ten Years			22,499				22,106				1.83				43,099				41,021				1.81				41,088				41,248				1.75
After Ten Years			-				-				-				-				-				-				3				3				0.87
			44,595				44,006				1.71				50,598				48,446				1.81				47,101				47,295				1.77
States & Political Subdivisions
Within One Year			604				607				6.81				1,288				1,321				6.59				970				990				4.98
After One But Within Five Years			2,998				3,125				6.12				1,246				1,305				5.95				1,101				1,158				5.92
After Five But Within Ten Years			16,782				17,343				5.18				25,960				26,125				5.11				19,439				20,633				5.23
After Ten Years			19,965				21,347				5.91				31,555				31,663				5.65				26,883				29,249				5.90
			40,349				42,422				5.64				60,049				60,414				5.44				48,393				52,030				5.62
Mortgage-Backed Securities			110,626				110,443				2.16				93,501				90,900				2.06				77,513				78,678				2.01
Equity Securities			171				208				4.32				165				195				4.02				183				205				1.97
Total		$	195,741			$	197,079				2.81	%		$	204,313			$	199,955				3.02	%		$	173,190			$	178,208				3.00	%

 

40

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

 

 

Loans

Total loans, net of unearned income, increased $5,814,583 or 6.2% from 2013 to 2014. The increase in total loans in 2014 was primarily due to the increase in consumer real estate, commercial real estate, and commercial and other loans which increased $3,275,000, $2,842,000, and $398,000, respectively, offset in part by the decrease in consumer loans of $692,000. The increase in consumer real estate loans was primarily in construction loans, residential real estate loans, and home equity lines of credit, offset in part by declines in farmland and home equity loans. Commercial real estate loans increased due to an increase in both non-farm, non-residential loans and multifamily residential loans. The increase in commercial and other loans was primarily due to the increase in commercial loans and non-rated industrial development obligations. The decline in consumer loans was primarily due to the decrease in installment loans to individuals as well as a slight decrease in credit cards. During 2013, total loans decreased $5,985,499 or 6.0%. The decrease in total loans in 2013 was primarily due to the decrease in commercial real estate and consumer loans which decreased $6,043,000 and $1,775,000, respectively, offset in part by the increase in commercial and other loans and consumer real estate which increased $1,122,000 and $722,000, respectively. The decline in commercial real estate loans was primarily due to the decline in loans secured by non-farm, non-residential loans as well as a decline in multifamily residential loans. The decline in consumer loans was primarily due to the decrease in installment loans to individuals as well as the decrease in credit cards. Commercial and other loans increased due to an increase in non-rated industrial development obligations offset in part by a decrease in commercial loans. The increase in consumer real estate loans during 2013 was primarily in residential real estate loans and home equity lines of credit, offset in part by declines in construction, farmland, and 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 thirty-three percent (33%) 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 three percent (3%) of the loan portfolio. The changes in the composition of the loan portfolio from 2013 to 2014 were a 2% increase in consumer real estate loans, a 1% decrease 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, 2014:

 

(dollars in thousands)		December 31, 2014
		In One Year or Less				After One Year Through Five Years				After Five Years
Commercial real estate		$	866			$	8,932			$	37,151
Commercial and other loans			928				4,299				11,896
Total		$	1,794			$	13,231			$	49,047

The following table presents an analysis of fixed and variable rate loans as of December 31, 2014 due to mature after one year:

 

(dollars in thousands)		December 31, 2014
		Fixed Rate				Variable Rate				Total Due After One Year
Commercial real estate		$	12,101			$	33,982			$	46,083
Commercial and other loans			8,859				7,336				16,195
Total		$	20,960			$	41,318			$	62,278

 

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

 

 

Loans Held for Sale

The Company has entered into an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) under which the bank may sell conforming one-to-four family residential mortgage loans to the FHLB. The agreement provides for a maximum commitment of $5,000,000. Loans sold to the FHLB are sold with limited recourse or credit risk 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 was $8,501,093 and $9,489,935 as of December 31, 2014 and 2013, respectively. The loans which were sold were also subject to a recourse obligation or credit risk in the amount of $322,594 and $342,602 at December 31, 2014 and 2013, 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 $1,437,000 at December 31, 2014 as compared to $1,314,000 at December 31, 2013. Non-performing loans increased $123,000 in 2014, after decreasing $2,237,000 in 2013. The increase in non-performing loans in 2014 as compared to 2013 was primarily due to the increase in renegotiated loans and loans past due ninety days or more and still accruing, offset in part by the decline in non-accrual loans. The decrease in non-performing loans in 2013 as compared to 2012 was primarily due to the decline in non-accrual loans.

Table Six - Risk Elements

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

 

(dollars in thousands)		December 31,
		2014				2013				2012				2011				2010
Past due 90 days or more, still accruing:
Commercial and other loans		$	-			$	-			$	-			$	-			$	-
Commercial real estate			-				-				-				-				-
Consumer real estate			-				-				-				-				28
Consumer			14				-				-				-				-
			14				-				-				-				28
Renegotiated:
Commercial and other loans		$	-			$	-			$	-			$	-			$	-
Commercial real estate			41				44				-				-				-
Consumer real estate			350				-				-				-				-
Consumer			-				-				-				-				-
			391				44				-				-				-
Non-accrual:
Commercial and other loans		$	39			$	26			$	31			$	39			$	54
Commercial real estate			703				885				3,115				3,533				4,147
Consumer real estate			290				355				388				447				688
Consumer			-				4				17				27				14
			1,032				1,270				3,551				4,046				4,903
Other real estate		$	-			$	-			$	-			$	138			$	8
Total non-performing assets		$	1,437			$	1,314			$	3,551			$	4,184			$	4,939
Total non-performing assets to total loans and other real estate			1.45	%			1.41	%			3.57	%			3.82	%			4.07	%

Loans are placed in non-accrual when the principal or interest is past due ninety days or more, unless the loan is both well secured and in the process of collection. Non-accrual loans were $1,032,000 or 1.0% of total loans outstanding as of December 31, 2014, as compared to $1,270,000 or 1.4% of total loans outstanding as of December 31, 2013. Non-accrual loans decreased in 2014 and 2013 primarily due to payments being applied to non-accrual loans. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.

 

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

 

 

Loans - Continued

 

Generally, all banks recognize interest income on the accrual basis, except for certain loans which are placed on a non-accrual status. A loan is 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 when either the principal or interest is past due ninety 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 $63,435 and $84,793 for 2014 and 2013, respectively. Interest income of $15,704 and $1,265 was recognized on the renegotiated loans subsequent to their classification as impaired for the years ended December 31, 2014 and December 31, 2013, respectively.

Allowance for Loan Losses

In all lending activities there is an inherent risk that borrowers will be unable to repay their obligations. The Company maintains an allowance for loan losses to absorb probable loan losses. Table Seven presents a five-year summary of the allowance for loan losses. The Company has historically maintained the allowance for loan losses at a level greater than actual charge-offs. Although a subjective evaluation is determined by management, the Company believes it has appropriately assessed the risk of loans in the loan portfolio and has provided for an allowance which is adequate based on that assessment. Because the allowance is an estimate, any change in the economic conditions of the Company’s market area could result in new estimates which could affect the Company’s earnings. Management monitors the quality of the loan portfolio through reviews of past due loans and all significant loans which are considered to be potential problem loans on a monthly basis. The internal loan review function provides for an independent review of commercial, real estate, and installment loans in order to measure the asset quality of the portfolio. Management’s review of the loan portfolio has not indicated any material loans, not disclosed in the accompanying tables and discussions which are known to have possible credit problems that cause management to have serious doubts as to the ability of each borrower to comply with their present loan repayment terms.

The allowance for loan losses decreased $52,049 or 2.8%, between December 31, 2013 and December 31, 2014. The allowance for loan losses represented 1.8% and 2.0% of outstanding loans as of December 31, 2014 and 2013. Net loan charge-offs were $52,049 in 2014, compared to $11,793 in 2013. The net loan charge-offs remain within historical ranges. There was no provision made to the allowance for loan losses during 2014. The Company recorded a negative provision for loan losses in the amount of $400,000 in 2013, based upon the decline in specific reserves required on nonperforming assets. 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 and deletions 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 following table presents a summary of loans charged off and recoveries of loans previously charged off by type of loan.

Table Seven - Analysis of Allowance for Possible Loan Losses

 

(dollars in thousands)		December 31,
		2014				2013				2012				2011				2010
Allowance for loan losses:
Balance at beginning of period:		$	1,865			$	2,181			$	2,504			$	2,059			$	1,894
Loans charged off:
Commercial and other loans			5				-				-				8				14
Commercial real estate			36				-				87				156				-
Consumer real estate			-				-				-				28				-
Consumer			16				12				9				19				51
Total			57				12				96				211				65
Recoveries:
Commercial and other loans			-				-				-				2				1
Commercial real estate			-				84				15				45				-
Consumer real estate			-				-				-				-				-
Consumer			5				12				6				9				9
Total			5				96				21				56				10
Net charge-offs (recoveries)			52				(84	)			75				155				55
Provision (credit) charged to operations			-				(400	)			(248	)			600				220
Balance at end of period:		$	1,813			$	1,865			$	2,181			$	2,504			$	2,059
Average loans outstanding		$	94,103			$	97,374			$	104,566			$	115,415			$	124,074
Ratio of net charge-offs to average loans outstanding for the period			0.06	%			-0.09	%			0.07	%			0.13	%			0.04	%
Ratio of the allowance for loan losses to loans outstanding for the period			1.83	%			2.00	%			2.19	%			2.29	%			1.70	%

 

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

 

 

Table Eight - Loan Portfolio - Allocation of Allowance for Possible Loan Losses

The following table presents an allocation of the allowance for possible loan losses at each of the five year periods ended December 31, 2014. The allocation presented below is based on the historical average of net charge offs per category combined with the changes in loan growth, level of nonperforming assets, and local economic conditions, and management’s review of the loan portfolio.

 

(dollars in thousands)		December 31,
		2014								2013								2012								2011								2010
		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		$	281				17.2	%		$	260				17.9	%		$	179				15.7	%		$	179				14.6	%		$	212				16.9	%
Commercial real estate			1,254				47.3	%			1,315				47.1	%			1,762				50.4	%			2,082				51.5	%			1,511				46.5	%
Consumer real estate			263				32.7	%			263				31.3	%			193				28.6	%			193				27.4	%			272				28.1	%
Consumer			15				2.8	%			27				3.7	%			47				5.3	%			50				6.5	%			64				8.5	%
Total		$	1,813				100.0	%		$	1,865				100.0	%		$	2,181				100.0	%		$	2,504				100.0	%		$	2,059				100.0	%

Other Assets

Other assets decreased approximately $2.6 million during 2014 primarily due to a decrease in the deferred tax asset related to available-for-sale securities as well as the deferred tax asset valuation allowance of $225,000 recorded in 2014. Additional information on the deferred tax asset valuation allowance is contained under the Income Taxes section on page 39.

Deposits

A stable core deposit base is the major source of funds for the Company’s subsidiary bank. The deposit mix depends upon many factors including competition from other financial institutions, depositor interest in certain types of deposits, changes in the interest rate and the Company’s need for certain types of deposit growth. Total deposits decreased approximately $13.7 million or 4.8% in 2014. The decrease in total deposits was primarily due to the declines in non interest bearing demand deposits and time deposits, offset in part by the increases in savings deposits and interest bearing demand deposits. Non interest bearing demand deposits decreased approximately $14.3 million or 25.7% and time deposits decreased approximately $4.7 million or 7.0% during 2014 while savings deposits increased $4.7 million or 4.3% and interest bearing demand deposits increased $0.6 million or 1.2%.

At December 31, 2014, non interest bearing deposits comprised 15% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 85% of total deposits. The changes in the composition of the deposit mix since December 31, 2013 were a 5% decrease in non interest bearing deposits and a 5% increase in interest bearing deposits.

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, 2014 and 2013. Repurchase agreements increased $836,048 or 4.1%, from $20,215,183 at December 31, 2013 to $21,051,231 at December 31, 2014. The increase in repurchase agreements in 2014 was primarily due to the increase in the balances maintained by existing commercial customers.

Federal Home Loan Bank and Other Long-term Borrowings

Federal Home Loan Bank (“FHLB”) borrowings were $3,420,312 and $3,515,580 at December 31, 2014 and 2013, respectively, with a weighted average interest rate of 4.78%. 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.

 

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

 

 

Table Nine - Contractual Maturities of Long-term Obligations and Operating Leases

The following table presents the contractual maturities of long term obligations and operating leases at December 31, 2014:

 

(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		$	99			$	215			$	1,803			$	1,303			$	3,420
Operating leases			221				262				72				126				681
		$	320			$	477			$	1,875			$	1,429			$	4,101

Other Liabilities

Other liabilities decreased $828,834 during 2014 primarily due to investment purchases recorded based on trade dates.

Off-Balance Sheet Arrangements

Table Ten - Contractual Maturities of Commitments and Contingencies

The following table presents the maturities of commitments and contingencies at December 31, 2014:

 

(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		$	17,176			$	2,453			$	939			$	2,315			$	22,883
Standby letters of credit			90				-				-				182				272
		$	17,266			$	2,453			$	939			$	2,497			$	23,155

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 $197,078,938 classified as available for sale at December 31, 2014. 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 $92,305,000. 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. The remaining maximum borrowing capacity with the FHLB at December 31, 2014 was approximately $37.2 million subject to the purchase of additional FHLB stock. The subsidiary bank had a short term line of credit in the aggregate amount of approximately $19.8 million and $19.4 million available with the FHLB at December 31, 2014 and 2013, respectively. There were no short term borrowings outstanding pursuant to this agreement as of December 31, 2014 and 2013. The subsidiary bank also has an agreement with a financial institution for an available line of credit in the amount of $4,000,000 to be used for federal funds borrowings. There were no borrowings outstanding related to this agreement as of December 31, 2014 and 2013. The subsidiary bank also has pledged investment securities in the amount of $17.0 million to secure the ability to borrow from the Federal Reserve discount window should the need arise. There were no borrowings outstanding from the Federal Reserve as of December 31, 2014 and 2013. At December 31, 2014 and 2013, the Company had outstanding loan commitments and unused lines of credit totaling $23,155,000 and $27,315,000, respectively. Management placed a high probability for required funding within one year of approximately $14.7 million as of December 31, 2014. Approximately $7.3 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 13.3% in 2014 due to an 11.5% increase in accumulated other comprehensive income and an increase of 1.7% from current earnings after quarterly dividends. The increase in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized gains on available for sale investment securities. The increase in stockholders’ equity in 2014 follows a decrease of 13.8% in 2013 due to a 16.4% decrease in accumulated other comprehensive income, partially offset by an increase of 2.6% from current earnings after quarterly dividends. Stockholders’ equity amounted to 10.5% and 9.0% of total assets at December 31, 2014 and 2013, respectively. The Company paid dividends of $.80 and $.76 per share in 2014 and 2013, respectively. As of December 31, 2014, First West Virginia Bancorp, Inc. had 231 stockholders of record.

The Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. The Company and its subsidiary bank are subject to regulatory risk-based capital guidelines administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. These risk-based capital guidelines establish minimum capital ratios of Total Capital, Tier 1 Capital, and Leverage to assess the capital adequacy of bank holding companies. Additional information on capital amounts, ratios and minimum regulatory requirements for the Company and its subsidiary bank can be found in Note 19 of the Consolidated Financial Statements.

 

45

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

 

 

Market Information of Common Stock

First West Virginia Bancorp, Inc.’s common stock is traded on the New York Stock Exchange MKT 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
2014		High		$	22.48			$	20.85			$	22.99			$	21.90
		Low		$	15.72			$	16.95			$	18.01			$	18.17
2013		High		$	17.40			$	17.40			$	18.20			$	16.95
		Low		$	15.10			$	16.20			$	15.82			$	15.06

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. 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 $7,788,000, which indicates the Company’s earning assets reprice sooner than interest bearing liabilities at December 31, 2014. 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, 2014 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 3.0%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 10.8%. The projections provided by the model are not intended as an actual forecast of the bank’s performance in a particular rate environment, and should not be relied upon. Actual changes in the interest rate environment normally do not take place instantaneously, but over a period of time, and do not occur in a parallel fashion. Additionally, the balance sheet composition, spread relationships for new dollars invested, non interest income and expenses, investment practices, and deposit practices all change as a result of changes in interest rates and would need to be considered by the Asset Liability Committee.

 

46

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

 

 

Interest Rate Risk Table - December 31, 2014

 

(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		$	15,048			$	-			$	-			$	-			$	5,348			$	20,396
Investment securities			9,697				18,837				63,883				103,322				1,340				197,079
Loans			20,613				23,316				34,134				20,251				903				99,217
Allowance for loan losses			-				-				-				-				(1,813	)			(1,813	)
Bank owned life insurance			3,840				-				-				-				-				3,840
Other assets			850				-				-				-				12,821				13,671
Total assets		$	50,048			$	42,153			$	98,017			$	123,573			$	18,599			$	332,390
LIABILITIES AND CAPITAL
NOW and savings accounts		$	18,739			$	-			$	45,142			$	79,730			$	-			$	143,611
Money Market Accounts (MMDA’s)			8,857				-				5,248				10,499				-				24,604
Certificates of deposit < $100,000			6,823				15,820				13,521				4,860				-				41,024
Certificates of deposit > $100,000			4,871				7,637				5,906				2,934				-				21,348
Noninterest bearing demand deposits			-				-				-				-				41,556				41,556
Repurchase agreements			21,051				-				-				-				-				21,051
FHLB borrowings			151				464				1,322				1,483				-				3,420
Other liabilities			-				-				-				-				904				904
Stockholders’ equity			-				-				-				-				34,872				34,872
Total liabilities and capital		$	60,492			$	23,921			$	71,139			$	99,506			$	77,332			$	332,390
GAP			(10,444	)			18,232				26,878				24,067				(58,733	)
GAP/ Total Assets			(3.14	)%			5.49	%			8.09	%			7.24	%			(17.67	)%
Cumulative GAP			(10,444	)			7,788				34,666				58,733				-
Cumulative GAP/Total Assets			(3.14	)%			2.34	%			10.43	%			17.67	%			0.00	%

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

 

47

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

 

 

Summarized Quarterly Financial Information

A summary of selected quarterly financial information follows:

 

2014		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total interest income		$	2,409,324			$	2,381,414			$	2,424,611			$	2,385,380
Total interest expense			365,122				356,134				364,961				363,007
Net interest income			2,044,202				2,025,280				2,059,650				2,022,373
Provision for loan losses			-				-				-				-
Investment securities gain (loss)			92				260,321				608,555				(438	)
Total other income			206,433				246,056				256,573				299,042
Total other expenses			1,910,419				2,024,948				2,013,489				2,110,663
Income before income taxes			340,308				506,709				911,289				210,314
Net income			446,256				537,689				773,825				146,135
Net income per share			0.26				0.31				0.45				0.09
2013		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Total interest income		$	2,302,771			$	2,357,775			$	2,350,742			$	2,402,761
Total interest expense			387,202				376,418				378,401				382,417
Net interest income			1,915,569				1,981,357				1,972,341				2,020,344
Provision (credit) for loan losses			-				-				-				(400,000	)
Investment securities gain			14				2,236				674				377,073
Total other income			272,251				251,921				268,995				266,717
Total other expenses			1,890,613				1,890,553				1,947,613				1,942,927
Income before income taxes			297,221				344,961				294,397				1,121,207
Net income			381,337				414,415				390,971				1,054,325
Net income per share			0.22				0.24				0.23				0.61

 

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FIRST WEST VIRGINIA BANCORP, INC. DIRECTORS

 

Jonathan Bedway   Nada E. Beneke   Dr. Clyde D. Campbell   Rosalie J. Dlesk		Robert J. Fitzsimmons   Joseph M. Menendez   R. Clark Morton   Roberta Robinson Olejasz		William G. Petroplus   Thomas L. Sable   Brian L. Schambach

 

 

FIRST WEST VIRGINIA BANCORP, INC. OFFICERS

 

R. Clark Morton Chairman   William G. Petroplus President and Chief Executive Officer		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

 

 

PROGRESSIVE BANK, N.A. DIRECTORS

 

Jonathan Bedway Nada E. Beneke Dr. Clyde D. Campbell Robert R. Cicogna		Rosalie J. Dlesk Robert J. Fitzsimmons Elizabeth H. Hestick Joseph M. Menendez		Tulane B. Mensore R. Clark Morton Roberta Robinson Olejasz William G. Petroplus		Thomas L. Sable Brian L. Schambach

DIRECTORS EMERITI: James C. Inman, Jr. and Laura G. Inman

 

 

PROGRESSIVE BANK, N.A. OFFICERS

 

R. Clark Morton Chairman of the Board   William G. Petroplus President and 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		Gary S. Martin Senior Vice President Senior Loan Manager   Deborah A. Kloeppner Vice President Compliance and CRA Officer Secretary   Susan E. Reinbeau Vice President Branch Administrator Security Officer Office Manager Woodsdale/Warwood   Dena R. Rine Vice President Controller		Michele L. Stanley Vice President Operations Officer   Kerrie A. Weisenborn Vice President Credit Administration   David E. Wharton Vice President Information Technology Officer Data Security Officer   Todd D. Cover Assistant Vice President Business Development Officer		Matthew J. Drahos Assistant Vice President Business Development Officer   Mark D. Nicholson Assistant Vice President Business Development Officer   Debra M. Banfi Assistant Vice President Loan Officer   Kimberly A. Hughes Assistant Vice President Credit Analyst   James J. Warman Assistant Vice President Credit Analyst		Rebecca A. Palmer Assistant Vice President Manager Data Processing   Laura A. Schmidt Assistant Vice President Accounting Officer   Susan M. Scotka Human Resource Manager   Vickie D. Poling Loan Officer   Amanda M. Schnelle Bank Secrecy, AML & OFAC Officer		Peggy Burley Office Manager Moundsville   Nancy J. Farley Office Manager New Martinsville   Beth A. Heyman Office Manager Bethlehem/Wellsburg   Karen L. Zonker Office Manager Bellaire   Nada E. Beneke Assistant Secretary

 

 

STOCKHOLDER INFORMATION

 

 

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