FIRST WEST VIRGINIA BANCORP INC
Business    4 - 11      Item 1A     Risk Factors    11 - 13
Unresolved Staff Comments    14
Properties    14
Legal Proceedings    15
Submission of Matters to a Vote of Security Holders    15       PART II
Market for the Registrant’s Common Equity and Related Stockholder Matters    15-16
Selected Financial Data    16
Management’s Discussion and Analysis of Financial Condition and Results of Operations    16
Quantitative and Qualitative Disclosures About Market Risk    17
Financial Statements and Supplementary Data    17
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    17
Controls and Procedures    17
Other Information    17       PART III
Directors and Executive Officers of the Registrant    18 -19
Executive Compensation    19
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    19
Certain Relationships and Related Transactions    19
Principal Accountant Fees and Services    19       PART IV
Exhibits and Financial Statement Schedules     20      Signatures     21      Exhibit Index     22    3    Table of Contents  PART 1   Item 1 Business  General  First West Virginia Bancorp, Inc. (“Holding Company”), was organized as a West Virginia business corporation on July 1, 1973 at the request of the Boards of Directors of the Bank of Warwood, N.A. and Community Savings Bank, N.A. for the purpose of becoming a bank holding company, under the Bank Holding Company Act of 1956, as amended. On December 30, 1974 the shareholders of those banks voted to become constituent banks of the Holding Company, which reorganization was subsequently accomplished in accordance with regulatory procedure, and the Holding Company thus became the first bank holding company in the state of West Virginia. Those banks later merged on June 30, 1984 under the name “First West Virginia Bank, N.A.” In November, 1995, the subsidiary banks of the Holding Company adopted the Common Name of “Progressive Bank, N.A.”  At December 31, 2005, First West Virginia Bancorp, Inc. had one wholly-owned banking subsidiary, Progressive Bank, N.A. in Wheeling, West Virginia.  Progressive Bank, N. A. is a community bank serving all of Ohio, Brooke, Marshall, Upshur, Lewis and Wetzel counties in the state of West Virginia, and a portion of the west bank of the Ohio River, located in the State of Ohio. Progressive Bank, N.A. operates three full-service offices in Ohio county, Wheeling, West Virginia, one full-service office in Brooke county, Wellsburg, West Virginia, two full-service offices in Marshall county, Moundsville, West Virginia, one full-service office in Wetzel county, New Martinsville, West Virginia, one full-service office in Upshur county, Buckhannon, West Virginia, one full-service office in Lewis county, Weston, West Virginia, and one full-service office in Bellaire, Ohio. Progressive Bank, N.A. had total assets of approximately $265.7 million as of December 31, 2005.  Total Holding Company assets as of December 31, 2005, which include the assets of its operating subsidiary bank, was $266.2 million. The authorized capital of the Holding Company consists of 2,000,000 shares of capital stock, par value of $5.00 per share, of which 1,538,443 shares less 10,000 treasury shares were issued and outstanding as of December 31, 2005 to 325 registered shareholders. Shareholders’ equity at that date was $23,958,629.  General Description of Business  First West Virginia Bancorp, Inc. is dependent upon its subsidiary for cash necessary to pay expenses, and dividends to its stockholders. The Holding Company functions primarily as the holder of the capital stock of its wholly-owned subsidiary bank.  The subsidiary bank of the Holding company is engaged in the business of banking and provides a broad range of consumer and commercial banking products and services to individuals, businesses, professionals and governments. The services and products have been designed in such a manner as to appeal to area consumers and businesses. The loan portfolio of the bank consists primarily of loans secured by real estate to consumers and businesses. The bank also engages in commercial loans and general consumer loans to individuals. The subsidiary bank offers a wide range of both personal and commercial types of deposit accounts and services as a means of gathering funds. Types of deposit accounts and services available include non-interest bearing demand checking, interest bearing checking (NOW accounts), savings, money market, certificates of deposit, individual retirement accounts, and Christmas Club accounts. The customer base for deposits is primarily retail in nature. The majority of the bank’s lending is concentrated in the upper Ohio Valley of northern West Virginia and adjacent areas of Ohio and Pennsylvania.  First West Virginia Bancorp, Inc.’s business is not seasonal. As of December 31, 2005, the subsidiary bank was not engaged in any operation in foreign countries and transactions with customers in foreign countries is not material.    4    Table of Contents Competition  Competition involving the Holding Company is generally felt at the subsidiary level. All phases of the banks’ business are highly competitive. The subsidiary bank encounters competition from other financial institutions and commercial banks. The subsidiary bank also competes with other insurance companies, small loan companies, credit unions with respect to lending activities and also in attracting a variety of deposit related instruments.  Supervision and Regulation  The Holding Company is subject to the provisions of the Federal Bank Holding Company Act of 1956, as amended, and to the supervision of the Board of Governors of the Federal Reserve System. The Bank Holding Company Act requires the Holding Company to secure the prior approval of the Federal Reserve Board before it can acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank, if, after such acquisition, it would own or control 5% or more of the voting shares of such bank. Similarly, a bank holding company is prohibited under the Act from engaging in, or acquiring direct or indirect control of 5% or more of the voting shares of any company engaged in non-banking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making determinations as to permitted non-banking activities, the Federal Reserve Board considers whether the performance of these activities by a bank holding company would offer benefits to the public which outweigh possible adverse effects.  As a bank holding company, the Holding Company is required to file with the Federal Reserve Board reports and any additional information that the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board also makes examinations of the Holding Company. The Holding Company is also required to register with the Office of the Commissioner of Banking of West Virginia and file reports as requested. The Commissioner has the power to examine the Holding Company and its subsidiary.  The Holding Company is also deemed an “affiliate” of its subsidiary bank under the Federal Reserve Act which imposes certain restrictions on loans between the Holding Company and its subsidiary bank, investments by the subsidiary in the stock of the Holding Company, or the taking of stock of the Holding Company by the subsidiary as collateral for loans to any borrower, or purchases by the subsidiary of certain assets from the Holding Company, and the payment of dividends by the subsidiary to the Holding Company.  Federal Reserve Board approval is required before the Holding Company may begin to engage in any permitted non-banking activity. The Federal Reserve Board is empowered to differentiate between activities which are initiated by a bank holding company or a subsidiary and activities commenced by acquisition of a going concern.  The operations of the Holding Company’s subsidiary bank, being a national bank, is subject to the regulations of a number of regulatory agencies including the regulations of a number of regulatory authorities including the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the applicable state Department of Banking. Representatives of the Comptroller of the Currency regulate and conduct examinations of the subsidiary bank. The subsidiary bank is required to furnish regular reports to the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Comptroller of the Currency has the authority to prevent national banks from engaging in an unsafe or unsound bank practice and may remove officers or directors. It may be noted that the subsidiary bank of a bank holding company is subject to certain restrictions imposed by the banking laws on extensions of credit to the bank holding company or its subsidiary.  Formal Agreement  In December, 2004, the Company’s subsidiary bank entered into an agreement with the Office of the Comptroller of the Currency (OCC) relating to the results of its most recent report of examination. The Formal Agreement contains certain required actions and certain restrictions. The agreement required the subsidiary bank to develop plans, programs, policies, and procedures relating to management and board supervision, long-term strategic goals, loan portfolio, criticized assets, capital, internal audit and internal loan review by certain dates and then to implement and follow those plans, programs, policies and procedures. A review and evaluation of certain groups of loans and correction of deficiencies was also required. Additionally, the formal agreement mandated that the subsidiary bank achieve and maintain a 7.50% Tier 1 leverage ratio and 13.0% Tier 1 capital ratio by March 31, 2005. Under the terms of the formal agreement, the board of directors of the subsidiary bank is responsible for the proper and sound management of the Bank and appointed a compliance committee from among their independent members, and    5    Table of Contents Supervision and Regulation - Continued  has reported monthly to the OCC on the progress in complying with the agreement. The subsidiary bank’s capital ratios have exceeded the required minimums set forth in the agreement since June, 2005. The subsidiary bank’s Board of Directors, as well as bank management, has taken considerable steps over the past year in resolving all of the items set forth in the agreement.  The Company’s board of directors also adopted a resolution with the Federal Reserve Bank of Cleveland, under authority given it by the Board of Governors of the Federal Reserve System, the federal regulatory agency for the Company. As with the agreement of the OCC, the Federal Reserve resolution necessitates certain actions and restrictions. Without prior Federal Reserve approval and a 30 day prior notice requirement, the resolution prohibits the Company from paying dividends, incurring debt, or participating in the acquisition of treasury stock. In addition, prior written approval is required before engaging in any non-bank activities. To date, the Company has taken, and intends to continue to take, all appropriate steps to comply with the Federal Reserve requirements.  Being a West Virginia corporation, the Holding Company is also subject to the corporate laws of the State of West Virginia as set forth in the West Virginia Corporation Act.  The Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) was enacted in August, 1989. This legislation created a new liability as a depository institution insured by the Federal Deposit Insurance corporation, (“the FDIC”), can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. Default is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that default is likely to occur in the absence of regulatory assistance.  Capital Requirements  The Federal Reserve Board and the Office of the Comptroller of the Currency require a minimum “tier 1” capital to be at least 3% of total assets (“Leverage Ratio”). For all but the most highly rated banks, the minimum Leverage Ratio requirement will be 4% to 5% of total assets. Tier 1 capital consists of: (i) common stockholders’ equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries; (ii) minus intangible assets (other than certain purchased mortgage and credit card servicing rights); and (iii) minus certain losses, and minus investments in certain securities of subsidiaries.  In addition, a national bank also must maintain a “tier 1 risk-based capital ratio” of 4%. The “tier 1 risk-based capital ratio” is defined in OCC regulations as the ratio to tier 1 capital to “risk-weighted assets”. A bank’s total risk-weighted assets are determined by: (i) converting each of its off-balance sheet items to an on-balance sheet credit equivalent amount; (ii) assigning each on-balance sheet asset and the credit equivalent amount of each off-balance sheet item to one of the five risk categories established in the OCC regulations; and (iii) multiplying the amounts in each category by the risk factor assigned to that category. The sum of the resulting amounts constitutes total risk-weighted assets.  A national bank is also required to maintain a “total risk-based capital ratio” of at least 8%. The “total risk-based capital ratio” is defined in the OCC regulations as the ratio of total qualifying capital to risk-weighted assets (as defined before). Total capital, for purposes of the risk-based capital requirement, consists of the sum of tier 1 capital (as defined for purposes of the Leverage Ratio) and supplementary capital. Supplementary capital includes such items as cumulative perpetual preferred stock, long-term and intermediate-term preferred stock, term subordinated debt and general valuation loan and lease loss allowances (but only in an amount of up to 1.25% of total risk-weighted assets). The maximum amount of supplementary capital that may be counted towards satisfaction of the total capital requirement is limited to 100% of core capital. Additionally, term subordinated debt and intermediate-term preferred stock may only be included in supplementary capital up to 50% of tier 1 capital.  Capital requirements higher than the generally applicable minimum requirements may be established for a particular national bank if the OCC determines that the bank’s capital is or may become inadequate in view of its particular circumstances. Individual minimum capital requirements may be imposed where a bank is receiving special supervisory attention, has a high degree of exposure to interest rate risk, or poses other safety or soundness concerns. Deficient capital may result in the suspension of an institution’s deposit insurance.  As of December 31, 2005, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as adequately 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.    6    Table of Contents Federal Deposit Insurance Corporation Improvement Act of 1991  The Holding Company may also be subject to certain provisions of the Federal Deposit Insurance Corporation Improvements Act of 1991 (“FDICIA”). FDICIA requires the Federal Reserve Board of Governors to adopt certain regulations establishing safety and soundness standards for bank holding companies. Many of the provisions of the regulation became effective in December, 1993. Additional provisions will be implemented through the adoption of regulation by various federal banking agencies.  Under OCC regulations, any national bank that receives notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized must file a capital restoration plan with the OCC addressing, among other things, the manner in which the association will increase its capital to comply with all applicable capital standards. Under the prompt corrective action regulations adopted by the OCC, an institution will be considered: (i) “well capitalized” if the institution has a total risk-based capital ratio of 10% or greater, a tier 1 risk-based capital ratio of 6% or greater, and Leverage Ratio of 5% or greater (provided the institution is not subject to an order, written agreement, capital directive or prompt corrective action to meet and maintain a specified capital level for any capital measure); (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8% or greater, a tier 1 risk-based capital ratio of 4% or greater, and a Leverage Ratio of 4% or greater (3% or greater if the institution is rated composite 1 in its most recent report of examination); (iii) “undercapitalized” if the institution has a total risk-based capital ratio of less than 8%, or a tier 1 risk-based capital ratio of less than 4%, or a Leverage Ratio of less than 4% (3% if the institution is rated composite 1 in its most recent report of examination); (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6%, or a tier 1 risk-based capital ratio of less than 3%, or a Leverage Ratio that is less than 3%; and (v) “critically undercapitalized” if the institution has a ratio of tangible equity to total assets that is less than 2%. The regulations also permit the OCC to determine that an institution should be placed in a lower category based on the existence of an unsafe and unsound condition or on other information, such as the institution’s examination report, after written notice.  The degree of regulatory intervention mandated by FDICIA and the prompt corrective action regulations are tied to a national bank’s capital category, with increasing scrutiny and more stringent restrictions being imposed as a bank’s capital declines. The prompt corrective actions specified by FDICIA for undercapitalized banks include increased monitoring and periodic review of capital compliance efforts, a requirement to submit a capital restoration plan, restrictions on dividends and total asset growth, and limitations on certain new activities (such as opening new branches and engaging in acquisitions and new lines of business) without OCC approval. Banks that are significantly undercapitalized or critically undercapitalized may be required to raise additional capital so that the bank will be adequately capitalized or be acquired by, or combined with, another bank if grounds exist for appointing a receiver. Further, the OCC may restrict such banks from (i) entering into any material transaction without prior approval of the OCC; (ii) making payments on subordinated debt; (iii) extending credit for any highly leveraged transaction; (iv) making any material change in accounting methods; (v) engaging in certain affiliate transactions; (vi) paying interest on deposits in excess of the prevailing rates of interest in the region where the institution is located; (vii) paying excess compensation or bonuses; and (viii) accepting deposits from correspondent depository institutions. In addition, the OCC may require that such banks; (a) hold a new election for directors, dismiss any director or senior executive officer who held office for more than 180 days immediately before the institution became undercapitalized, or employ qualified senior executive officers; and (b) divest or liquidate any subsidiary which the OCC determines poses a significant risk to the institution.  Any company which controls a significantly undercapitalized national bank may be required to (i) divest or liquidate any affiliate other than an insured depository institution; or (ii) divest the bank if the OCC determines that divestiture would improve the bank’s financial condition and future prospects. Generally a conservator or receiver must be appointed for a critically undercapitalized bank no later than 90 days after the bank becomes critically undercapitalized, subject to a limited exception for banks which are in compliance with an approved capital restoration plan and which the OCC certifies as not likely to fail. Additionally, the OCC may impose such other restrictions on a capital-deficient bank as the OCC deems necessary or appropriate for the safety and soundness of the bank, its depositors and investors, including limitations on investments and lending activities. The failure by a bank to materially comply with an approved capital plan constitutes an unsafe or unsound practice.  FDICIA and the regulations promulgated by the OCC pursuant thereto also require any company that has control of an “undercapitalized” national bank, in conjunction with the submission of a capital restoration plan by the bank, to guarantee that the bank will comply with the plan and provide appropriate assurances of performance. The aggregate liability of any such controlling company under such guaranty is limited to the lesser of: (i) 5% of the bank’s assets at the time it became undercapitalized; or (ii) the amount necessary to bring the bank into capital compliance at the time the bank fails to comply with the terms of its capital plan.    7    Table of Contents Insurance of Deposits  The subsidiary bank’s deposits are insured by the FDIC through the Bank Insurance Fund (“BIF”) up to a maximum of $100,000 for each insured depositor. The insurance premium payable by each BIF member is based on the institution’s assessment base (generally total deposit accounts subject to certain adjustments). The premiums are paid quarterly based on semiannual assessments. The FDIC promulgated regulations establishing a risk-based assessment system for each semiannual period commencing with the first semiannual payment yearly.  Under the risk-based assessment system, an institution is assigned to one of three capital groups and to one of three supervisory subgroups for purposes of determining an assessment rate. The capital group is determined by the institution’s regulatory capital position. The supervisory subgroup assignments are based on a determination by the FDIC’s Director of the Division of Supervision. Institutions may request a review of the supervisory subgroup assignment. Under this formula, well-capitalized institutions classified as Subgroup “A” (financially sound institutions with only a few minor weaknesses) will pay the most favorable assessment rate while undercapitalized institutions classified as Subgroup “C” (institutions which pose a substantial probability of loss to the Bank Insurance Fund (BIF) unless corrective action is taken) will pay the least favorable assessment rate.  The FDIC Board established a process for increasing and lowering all rates for BIF institutions semiannually, if conditions warrant a change. Under this system, the FDIC Board will have the flexibility to adjust the entire BIF assessment rate schedule twice a year, but only within a range of 5% above or below the premium schedule adopted, without first having to seek public comment. Any adjustments above or below the 5% range requires public comment, prior to adjusting the assessment rate schedule. The BIF assessment schedule of 0% to 27% remains in effect for the first semi annual period of 2006. The BIF assessment annual rate was approximately 3 basis points for the second semi annual period of 2005. There were no BIF assessments paid by the subsidiary bank during 2004 and 2003.  The FDIC Board of Directors collects an additional assessment (termed the FICO assessment) against BIF-assessable deposits as a result of the enactment of the Deposit Insurance Funds Act of 1996. The Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (FICO)to impose periodic assessments on depository institutions that are BIF members in order to spread the cost of interest payments on outstanding FICO bonds over a larger number of institutions. The FICO assessment annual rate was approximately 1.39, 1.51 and 1.61 basis points on BIF-assessable deposits during 2005, 2004 and 2003, respectively.  Monetary Policies  The earnings of the Holding Company are dependent upon the earnings of its wholly-owned subsidiary bank. The earnings of the subsidiary bank is affected by the policies of regulatory authorities, including the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. The policies and regulations of the regulatory agencies have had and will continue to have a significant effect on deposits, loans and investment growth, as well as the rate of interest earned and paid, and therefore will affect the earnings of the subsidiary banks and the Holding Company in the future, although the degree of such impact cannot accurately be predicted.  Employees  As of December 31, 2005, the Holding Company had 3 part-time employees. As of December 31, 2005, the subsidiary bank of the Holding Company had a total of 111 full-time employees and 10 part-time employees. No employees are union participants or subject to a collective bargaining agreement.  Interstate Banking  The Bank Holding Company Act prohibits acquisition by the Holding Company of 5% or more of the voting shares of, or interest in, all or substantially all of the assets of any bank without prior approval of the Federal Reserve Board. Regulations in the state of West Virginia have permitted the reciprocal interstate branching or acquisition of banks and bank holding companies since July 1, 1997. Many other states have adopted legislation which would permit interstate acquisitions by their banks and bank holding companies and also permit entry by West Virginia bank holding companies. Such legislation, however, contains various restrictions and conditions.    8    Table of Contents Securities Laws and Compliance  As of February 13, 1995, the Holding Company’s common stock was registered with the Securities and Exchange commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“1934 Act”). This registration requires ongoing compliance with the 1934 Act and its periodic filing requirements as well as a wide range of Federal and State securities laws. These requirements include, but are not limited to, the filing of annual, quarterly and other reports with the SEC, certain requirements as to the solicitation of proxies from shareholders as well as other proxy rules, and compliance with the reporting requirements and “short-swing” profit rules imposed by section 16 of the 1934 Act.  Acquisitions of or Affiliations With Other Banks or Bank Holding Companies  The Board of Directors of the Company from time to time has had exploratory discussions with other banks and bank holding companies with which an affiliation might be desirable. While all such discussions have been quite amicable, there are presently no understandings, agreements, or letters of intent to affiliate. Undoubtedly, exploratory discussions with other banks and bank holding companies will continue from time to time. The Board of Directors of the Company remains committed to obtaining a high return on the shareholders’ investment, consistent with sound and prudent banking practices, and believes that the acquisition of or affiliation with selected banks, bank holding companies and permitted non-banking activities is a desirable means to accomplish that objective. The Company has authorized but unissued shares of stock which might be issued from time to time to raise additional capital or for other bank affiliations or other corporate purposes.  Available Information  The Holding Company’s common stock was registered with the Securities and Exchange commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“1934 Act”). This registration requires periodic reporting and includes, but is not limited to, the filing of annual, quarterly and other reports with the SEC.  The public may read and copy any materials that are filed with SEC at the SEC’s Public Reference Room at 450 Fifth Street, N. W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, (http://www.sec.gov), that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The Company presently has an internet website, (http://www.firstwvbancorp.com). Copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished to the Securities and Exchange Commission are available on the internet website and are also available free of charge upon request.    9    Table of Contents Statistical Information  The statistical information noted below is provided pursuant to Guide 3, Statistical Disclosure by Bank Holding Companies. Page references are to the Annual Report to Shareholders for the year ended December 31, 2005, and such pages are incorporated herein by reference.                      Page  1.    Distribution of Assets, Liabilities and Stockholders’ equity; Interest Rates and Interest Differential               a.      Average Balance Sheets    24           b.      Analysis of Net Interest Earnings    24           c.      Rate Volume Analysis of Changes in Interest Income and Expense    25      2.    Investment Portfolio               a.      Book Value of Investments Book values of investment securities at December 31, 2005 and 2004 are as follows (in thousands):                       December 31,2005    December 31,2004   Securities held to maturity:             Obligations of states and political subdivisions    $ 1,776    $ 2,825                   Total held to maturity    $ 1,776    $ 2,825                   Securities available for sale :             U.S. Treasury securities and obligations of U.S. Government corporations and agencies    $ 40,590    $ 43,590   Obligations of states and political subdivisions      19,988      17,263   Corporate debt securities      —        2,848   Mortgage-backed securities      45,254      39,390   Equity Securities      390      645                   Total available for sale      106,222      103,736                   Total    $ 107,998    $ 106,561                                 b.      Maturity Schedule of Investments    28           c.      Securities of Issuers Exceeding 10% of Stockholders’ Equity    N/A           The Corporation does not have any securities of Issuers, other than U.S. Government and U.S. Government agencies and corporations, which exceed 10% of Stockholders’ Equity.        10    Table of Contents       Statistical Information - continued          3.      Loan Portfolio          a.      Types of Loans    11      b.      Maturities and Sensitivity to Changes in Interest Rates    29      c.      Risk Elements    30      1.      Nonaccrual, Past Due and Restructured Loans    30      2.      Potential problem loans    30      3.      Foreign outstandings    N/A      4.      Loan concentrations    16      d.      Other Interest Bearing Assets    N/A      4.      Summary of Loan Loss Experience    12, 31, 32      5.      Deposits          a.      Breakdown of Deposits by Categories, Average Balance and Average Rate Paid    24      b.      Other Deposit categories    N/A      c.      Foreign depositors with deposits in domestic offices    N/A      d.      Maturity Schedule of Time Certificates of Deposit and Other Time Deposits of $100,000 or more    13      6.      Return on Equity and Assets    22      7.      Short-Term Borrowings    15, 32   Item 1A Risk Factors  You should carefully review and consider the following risk factors, together with the other information provided in this Annual Report on Form 10-K.  The Company and its wholly owned subsidiary, Progressive Bank, N.A. (Bank) are subject to an agreement with the Federal Reserve Bank and a Formal Agreement with the Office of the Comptroller of the Currency (OCC).  The Company and its subsidiary Bank are required to comply with certain agreements with the OCC and Federal Reserve Board. The direct costs of compliance include legal and consulting fees, higher FDIC insurance rates, increased examination fees, and staffing costs, which all decrease earnings and reduce the capital base. Other costs include significant dedication of resources that shift the focus of the organization away from growing the customer base to ensuring that past problems of noncompliance with laws and regulations are addressed and controls are put in place to prevent future noncompliance. The agreements include restrictions on the ability of the Company and the Bank to declare dividends, of the Company to acquire treasury stock and the Bank to engage in certain non-bank activities. In addition, the Bank is required to maintain higher levels of capital than other financial institutions without similar regulatory issues. The management team has been actively engaged in addressing the specific issues raised in the agreements and ensuring compliance with all requirements. Noncompliance with such agreements may also have adverse affects upon the Company and the Bank.    11    Table of Contents Item 1A Risk Factors - continued  Due to Increased Competition, the Bank May Not Be Able to Attract and Retain Banking Customers At Current Levels Adversely affecting Company Profits.  If, due to competition from competitors in the Bank’s market areas, the Bank is unable to attract new and retain current customers, loan and deposit growth could decrease causing the Bank’s results of operations and financial condition to be negatively impacted. The Bank faces competition from the following:      1. local, regional and national banks;      2. savings and loans;      3. internet banks;      4. credit unions;      5. insurance companies;      6. finance companies; and      7. brokerage firms serving the Company’s market areas.  The Bank’s Lending Limit May Prevent It from Making Large Loans.  In the future, the Bank may not be able to attract larger volume customers because the size of loans that the Bank can offer to potential customers is less than the size of the loans that many of the company’s larger competitors can offer. We anticipate that our lending limit will continue to increase proportionately with the Bank’s growth in earnings; however, the Bank may not be able to successfully attract or maintain larger customers.  Certain Loans That the Bank Makes Are Riskier than Loans for Real Estate Lending.  The Bank makes loans that involve a greater degree of risk than loans involving residential real estate lending. Commercial business loans may involve greater risks than other types of lending because they are often made based on varying forms of collateral, and repayment of these loans often depends on the success of the commercial venture. Consumer loans may involve greater risk because adverse changes in borrowers’ incomes and employment after funding of the loans may impact their abilities to repay the loans.  The Bank’s loan portfolio at December 31, 2005, consists of the following:            Type of Loan    Percentage of Portfolio     Residential Real Estate    33.4 %   Commercial, Principally Real Estate Secured    34.4 %   Consumer    12.3 %  The Bank Is Subject to Interest Rate Risk.  Aside from credit risk, the most significant risk resulting from the Bank’s normal course of business, extending loans and accepting deposits, is interest rate risk. If market interest rate fluctuations cause the bank’s cost of funds to increase faster than the yield of its interest-earning assets, then its net interest income will be reduced. The Bank’s results of operations depend to a large extent on the level of net interest income, which is the difference between income from interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Interest rates are highly sensitive to many factors that are beyond the company’s control, including general economic conditions and the policies of various governmental and regulatory authorities.  The Company and the Bank rely heavily on their management team, and the unexpected loss of key management may adversely affect operations.  The success of the Company and the Bank to date has been influenced strongly by their ability to attract and to retain senior management experienced in banking and financial services. The ability to retain executive officers and the current management teams will continue to be important to the successful implementation of their strategies. Neither the Company nor the Bank have employment or non-compete agreements with any of these key employees. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on business and financial results. In the event that approvals by the OCC and the Federal Reserve Board of Sylvan J. Dlesk as President and CEO of the Company and as President of the Bank are not obtained as more particularly detailed at Item 9B, the lack of such executive positions and the expenditure of time and other assets necessary to find and recruit a replacement or replacements for such positions may have an adverse effect on the Company and the Bank.    12    Table of Contents Item 1A RISK FACTORS - continued  An Economic Slowdown in the Bank’s Market Area Could Hurt Our Business.  An economic slowdown in the Bank’s market areas could hurt our business. An economic slowdown could have the following consequences:      •   Loan delinquencies may increase;      •   Problem assets and foreclosures may increase;      •   Demand for the products and services of the company may decline; and      •   Collateral (including real estate) for loans made by the company may decline in value, in turn reducing customers’ borrowing power and making existing loans less secure.  The Company and the Bank are Extensively Regulated.  The operations of the Company are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on them. Policies adopted or required by these governmental authorities can affect the company’s business operations and the availability, growth and distribution of the company’s investments, borrowings and deposits. Proposals to change the laws governing financial institutions are frequently raised in Congress and before bank regulatory authorities. Changes in applicable laws or policies could materially affect the Company’s business, and the likelihood of any major changes in the future and their effects are impossible to determine.  The Bank’s Allowance for Loan Losses May Not Be Sufficient.  In the future, the Bank could experience negative credit quality trends that could head to a deterioration of asset quality. Such deterioration could require the Bank to incur loan charge-offs in the future and incur additional loan loss provision, both of which would have the effect of decreasing earnings. The Bank maintains an allowance for possible loan losses, which is a reserve established through a provision for possible loan losses charged to expense that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. Any increases in the allowance for possible loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Company’s financial condition and results of operation.  Shares of the Company’s Common Stock Are Not Insured.  Neither the Federal Deposit Insurance Corporation nor any other governmental agency insures the shares of the Company’s common stock. Therefore, the value of your shares in the Company is based on their market value and may decline.  The Company’s Ability to Pay Dividends Depends Primarily on Dividends Received from the Bank, which is Subject to Regulatory Limits.  The ability of the Company, being a bank holding company, to pay dividends depends on its receipt of dividends from the Bank. Dividend payments from the Bank are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of the Bank to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. The payment of dividends is permitted but temporarily subject to the prior approval of the OCC and there is no assurance that the Bank will be permitted to pay dividends in the future. The Corporation’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.  Customers May Default on the Repayment of Loans.  The Bank’s customers may default on the repayment of loans, which may negatively impact the Company’s earnings due to loss of principal and interest income. Increased operating expenses may result from the allocation of management time and resources to the collection and work-out of the loan. Collection efforts may or may not be successful causing the Bank to write off the loan or repossess the collateral securing the loan which may or may not exceed the balance of the loan.  The Company’s Controls and Procedures May Fail or Be Circumvented.  Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, no matter how well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial conditions.    13    Table of Contents  Item 1B Unresolved Staff Comments  Not Applicable   Item 2 Properties  The Holding Company and its subsidiary bank owned and/or leased property as of December 31, 2005 as described below.  Progressive Bank, N.A. presently owns the land and building at 1701 Warwood Avenue, Wheeling, West Virginia where the bank’s Warwood offices are located. The two-story building has been totally renovated and has approximately 15,500 square feet in total area. The office has three drive-in facilities adjacent to the rear of the building and customer parking to the north side of the building. A lot on North Seventeenth Street, southwest of the building, is used for employee parking. A two-story home located at 1709 Warwood Avenue was purchased in 1985 for the purpose of providing rental income and additional employee parking. Progressive Bank, N.A. also owns a lot adjacent to the bank for future expansion.  Progressive Bank, N.A. also owns the building and approximately 50% of the land at 875 National Road, Wheeling, West Virginia at which the Woodsdale branch is located. The Woodsdale branch has expanded its one-story building to a total of approximately 6,050 square feet in area in 1994. This expansion was accomplished by the purchase of approximately 6,600 square feet of land located immediately west of the existing bank office property in 1993. The office has a four lane drive-in facility at the rear of the building and one drive-in automatic teller machine in the front of the building. The remaining portion of the land is leased to the bank until 2013 with 1 ten-year option to renew.  Progressive Bank, N.A. has a lease agreement to rent property for use as a banking premises known as the “Bethlehem branch office.” The Bethlehem branch office is located at 1090 East Bethlehem Boulevard, Wheeling, West Virginia. The office is a one story building with approximately 3400 square feet of area and has four drive-in lanes. The lease is for a five year term commencing February 1, 2002, with eight successive five year options to renew.  Progressive Bank, N.A. also owns the Wellsburg branch office located at 744 Charles Street, Wellsburg, West Virginia. This office is a 3 story building with over 8,400 square feet of total area. This office includes an on-premises drive-in facility.  Progressive Bank, N.A. has a license agreement to operate the Moundsville supermarket branch office located at 1306 Lafayette Avenue, Moundsville, West Virginia. The license agreement is for a five year term commencing December 1, 1994, with two five year options to renew. The option to renew was exercised to extend the agreement for an additional period of 5 years, beginning January 1, 2005.  Progressive Bank, N.A. owns the building and land located at 809 Lafayette Avenue, Moundsville, West Virginia. The office is a two-story building with approximately 7,430 square feet of total area. This office also has a three lane drive in facility.  Progressive Bank, N.A. owns the New Martinsville branch office located at 425 Third Street, New Martinsville, West Virginia. The office is a single story brick branch bank facility with approximately 3,642 square foot of area. This office also has a two lane drive-in at the rear of the facility.  Progressive Bank, N.A. owns the building and land for the Bellaire branch office located at 426 34th Street, Bellaire, Ohio, including its drive-in facilities at the rear of the building. The bank office is housed in a one-story building, which includes office space in its basement for a total of 4,500 square feet of office area. The bank also owns a lot adjacent to the parking lot.  Progressive Bank, N.A. owns the building and the land for its full-service banking facility in Buckhannon, West Virginia. The Buckhannon office is a one story building with approximately 1,760 square feet of office area. The office has a three lane drive-in facility located at the rear of the building.  Progressive Bank, N.A. has a lease agreement for the building for its Weston branch office. The Weston branch office is located at #10 Market Square Shopping Center, Weston, West Virginia. This lease is for a period of five years commencing March 1, 1996, with three successive five year options to renew.  Progressive Bank, N.A. has a lease agreement for the building used for executive office space. The office space is located at 2B Elm Grove Crossing, Wheeling, West Virginia. This lease is for a period of one year commencing January 1, 2005, with two successive one year options to renew. This lease was renewed for an additional one year term through December 31, 2006.  Progressive Bank, N.A. owns a tract of real estate of approximately 1.64 acres situated on the waters of Finks run and West Virginia State Route 20, in Buckhannon, West Virginia. The property was purchased and is being held for future banking office expansion.  The Holding Company does not have any encumbrances or capital leases on its personal property.    14    Table of Contents  Item 3 Legal Proceedings  The nature of the business of the Holding Company’s subsidiary generates a certain amount of litigation involving matters arising in the ordinary course of business. The Company is unaware of any litigation other than ordinary routine litigation incidental to the business of the Company, to which it or its subsidiary is a party or of which any of their property is subject.   Item 4 Submission of Matters to Vote of Security Holders  No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.   PART II   Item 5 Market for Registrant’s Common Stock and Related Stockholder Matters  On February 13, 1995, the Holding Company’s common stock was filed and became effective under section 12(g) of the Securities and Exchange Act of 1934. On February 21, 1995, the Holding Company was approved for listing its securities on the American Stock Exchange’s Emerging Company Marketplace and began trading under the symbol FWV.EC on March 8, 1995. The Holding Company subsequently filed Form 8A to register its common stock under Section 12(b) of the Securities and Exchange Act of 1934 which became effective on March 1, 1995. On June 16, 1995, the Holding Company was approved for listing its securities on the American Stock Exchange primary list and began trading under the symbol FWV on June 20, 1995.  As of December 31, 2005, the Holding Company had 325 registered shareholders of record who collectively held 1,528,443 of the 2,000,000 authorized shares of the Holding Company, par value $5.00 per share. The Holding Company held 10,000 treasury shares.  The following table sets forth the high and low sales prices of the common stock of the Holding Company as reported by the American Stock Exchange.               Period    Stock Prices       Low    High       2005             4th Quarter    $ 17.40    $ 19.35   3rd Quarter    $ 18.10    $ 20.07   2nd Quarter    $ 19.51    $ 21.40   1st Quarter    $ 20.81    $ 23.90           2004             4th Quarter    $ 21.65    $ 25.05   3rd Quarter    $ 21.60    $ 23.40   2nd Quarter    $ 22.00    $ 24.15   1st Quarter    $ 22.63    $ 24.85    15    Table of Contents Dividends  Under the terms of the Formal Agreement as discussed in Note 19 to the Consolidated Financial Statements, the subsidiary bank cannot declare a dividend in 2006 without approval of the Comptroller of the Currency. The subsidiary bank is the primary source of funds to pay dividends to the stockholders of First West Virginia Bancorp, Inc. The Company and the subsidiary bank are prohibited from paying dividends without regulatory approval.  The Holding Company has paid regular quarterly cash dividends since it became a bank holding company in 1975. Total dividends declared and paid by the Holding Company in 2005 and 2004 were $.76 per share each year.  The following table sets forth annual dividend, net income and ratio of dividends to net income of the Holding Company for 2005, 2004 and 2003.                      DIVIDEND HISTORY OF HOLDING COMPANY    Ratio -Dividends toNet Income         (per share)          Dividend    Net Income      2005    $ .76    $ 1.48    51.4 %   2004    $ .76    $ 1.73    43.9 %   2003    $ .73    $ 1.64    44.5 %  The ability of the Holding Company to pay dividends will depend on the earnings of its subsidiary bank and its financial condition, as well as other factors such as market conditions, interest rates and regulatory requirements. Therefore, no assurances may be given as to the continuation of the Holding Company’s ability to pay dividends or maintain its present level of earnings. See Note 18 to the audited Consolidated Financial Statements for a discussion on subsidiary dividends.  The common stock of the Holding Company is not subject to any redemption provisions or restrictions on alienability. The common stock is entitled to share pro rata in dividends and in distributions in the event of dissolution or liquidation. There are no options, warrants, privileges or other rights with respect to Holding Company stock at the present time, nor are any such rights proposed to be issued.   Item 6 Selected Financial Data  Selected Financial Data on page 22 of the Annual Report to Shareholders of First West Virginia Bancorp, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13.1, is incorporated herein by reference.   Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations  Management’s Discussion and Analysis of Financial Condition and Results of Operations on Pages 23 through 35 of the Annual Report to Shareholders of First West Virginia Bancorp, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13.1, is incorporated herein by reference.    16    Table of Contents  Item 7A Quantitative and Qualitative Disclosures About Market Risk  The information required by Item 7A is noted in part in Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk on pages 33 through 34 of the Annual Report to Shareholders of First West Virginia Bancorp, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13.1, is incorporated herein by reference.   Item 8 Financial Statements and Supplementary Data  The report of independent registered public accounting firm and consolidated financial statements, included on pages 2 through 21 of the Annual Report to Shareholders of First West Virginia Bancorp, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13.1, are incorporated herein by reference.  Selected quarterly financial data included on page 35 of the Annual Report to Shareholders of First West Virginia Bancorp, Inc. for the year ended December 31, 2005, included in this report as Exhibit 13.1, is incorporated herein by reference.   Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  Not Applicable   Item 9A Controls and Procedures  Evaluation of Disclosure Controls and Procedures  The Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the corporation’s disclosure controls and procedures within 90 days of the filing of this annual report, and based on their evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the corporation’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.  Changes in Internal Controls  There was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting as of the period covered by this Annual Report which is included in this report as Exhibit 13.1, is incorporated herein by reference.   Item 9B Other Information  Subject to applicable regulatory approval, the positions of President and Chief Executive Officer of the Company and President of the Bank are to be assumed on a permanent basis by Sylvan J. Dlesk. Following an extensive executive search, it was determined that Mr. Dlesk was the candidate best suited for the positions. Mr. Dlesk serves as interim President and Chief Executive Officer of the Company through March 23, 2006, at which time the approval of the Federal Reserve Board for him to continue in such interim positions expires, and has served as interim President of the Bank through February 12, 2006. Mr. Dlesk also serves as Chairman of the Board of the Company and as a Director of the Bank, having been affiliated with the Company since 1988.  The appointment of Mr. Dlesk as President and Chief Executive Officer of the Company is subject to the approval of the Board of Governors of the Federal Reserve System (Board). The appointment of Mr. Dlesk as President of the Bank is subject to regulatory approval by the Office of the Comptroller of the Currency (OCC). Applications requesting the approval of Mr. Dlesk’s appointment have been submitted to both the OCC and the Board. Approvals, if received, may be subject to additional terms and conditions. There is currently no other candidate for these positions being considered by the Company or the Bank.  Although neither the Company nor the Bank know of any reason why they would not obtain all regulatory approvals in a timely manner, it cannot be certain when such approvals will be obtained or if they will be obtained.    17    Table of Contents  PART III   Item 10 Directors and Executive Officers of the Registrant  (a) Directors of the Registrant  The information required by Item 10 of FORM 10-K related to Directors of the Registrant appears in the First West Virginia Bancorp, Inc.’s 2006 Proxy Statement dated March 17, 2006 for Annual Meeting of Stockholders to be held April 11, 2006, included in this report as Exhibit 99, is incorporated herein by reference.  (b) Executive Officers of the Registrant  The following table sets forth selected information about the principal officers of the Holding Company.  TABLE             Name    Age     All Positions with Holding Company and Subsidiary (2) (3)  Sylvan J. Dlesk    67    Chairman of the Board of the Holding Company since 2004 (1) Interim President and Chief Executive Officer of the Company since April 2005; Vice Chairman of the Board of the Holding Company 2000-2004; Interim President and Chief Executive Officer of Progressive Bank, N.A. from April 2005 to February 2006; Director of Holding Company and Director of Progressive Bank, N.A. since 1988.      Laura G. Inman    64    Vice Chairman of the Board of the Holding Company since 2004; Chairman of the Board of the Holding Company 1998-2004; Vice Chairman of the Board of the Holding Company 1995-1998; Senior Vice President of the Holding Company 1993-1995; Senior Vice President of Progressive Bank, N.A. from 1993-2001; Director of the Holding Company and Director of Progressive Bank, N.A. from 1993.      Francie P. Reppy    45    Executive Vice President, Chief Administrative Officer, Chief Financial Officer and Treasurer of the Holding Company since 2005; Senior Vice President, Chief Financial Officer and Treasurer of the Holding Company 2004-2005; Senior Vice President and Chief Financial Officer of the Holding Company 2000-2004; Controller of the Holding Company 1992-2000; Executive Vice President, Chief Administrative Officer, and Chief Financial Officer since 2005; Senior Vice President, Chief Financial Officer and Cashier of Progressive Bank, N.A. 2004- 2005; Senior Vice President and Chief Financial Officer of Progressive Bank, N.A. 2000-2004; Controller of Progressive Bank, N.A. 1992-2000.      Nancy J. Ritter    52    Vice President of the Holding Company since 2004; Senior Vice President/Operations Officer and Cashier of Progressive Bank, N.A. since 2005. Senior Vice President of Progressive Bank, N.A. 2004-2005.      Connie R. Tenney    50    Vice President of the Holding Company since 1996; Senior Vice President of Progressive Bank, N.A. since 2003; President, Chief Executive Officer, Cashier and Secretary of Progressive Bank, N.A.- Buckhannon 1995-2003; Director of Progressive Bank, N.A. - Buckhannon 1990-2003; Executive Vice President, Cashier and Secretary of Progressive Bank, N.A.- Buckhannon 1990-1995; Cashier and Secretary 1986-1990    18    Table of Contents PART III  Item 10 Directors and Executive Officers of the Registrant - Continued      (b) Executive Officers of the Registrant - Continued          Notes:    (1) The position of President and Chief Executive Officer of the Company expires on March 23, 2006. Sylvan J. Dlesk serves as Chairman of the Board of the Company and as a Director of the Bank, having been affiliated with the Company since 1988.      (2) With the exception of Nancy J. Ritter and Sylvan J. Dlesk, each of the executive officers has been employed as an officer or an employee for the Company for more than 5 years. Nancy J. Ritter has been employed by the Company since April 2004 and was previously employed by WesBanco Bank as Senior Vice President Branch Administration from 2001 until 2004 and was employed by the former Wheeling National Bank from 1984, until its merger with WesBanco Bank. Mrs. Ritter held various operational positions at Wheeling National Bank and served as Senior Vice President of Branch Administration and Operations from 1998 until 2004.      (3) With the exception of Connie R. Tenney, all the principal officers of the Holding Company reside in or near Wheeling, West Virginia. Connie R. Tenney resides near Buckhannon, West Virginia.   Item 11 Executive Compensation  The information required by Item 11 of FORM 10-K related to Executive Compensation appears in the First West Virginia Bancorp, Inc.’s 2006 Proxy Statement dated March 17, 2006 for Annual Meeting of Stockholders to be held April 11, 2006, included in this report as Exhibit 99, is incorporated herein by reference.   Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  The information required by Item 12 of FORM 10-K appears in the First West Virginia Bancorp, Inc.’s 2006 Proxy Statement dated March 17, 2006 for Annual Meeting of Stockholders to be held April 11, 2006, included in this report as Exhibit 99, is incorporated herein by reference.   Item 13 Certain Relationships and Related Transactions  The information required by Item 13 of FORM 10-K appears in the First West Virginia Bancorp, Inc.’s 2006 Proxy Statement dated March 17, 2006 for Annual Meeting of Stockholders to be held April 11, 2006, included in this report as Exhibit 99, is incorporated herein by reference and in Note 14 of the Notes to Consolidated Financial Statements appearing at Page 16 of the Annual Report to Shareholders for the year ended December 31, 2005, included in this report as Exhibit 13.1, and incorporated herein by reference.   Item 14 Principal Accountant Fees and Services  The information required by Item 14 of FORM 10-K appears in the First West Virginia Bancorp, Inc.’s 2006 Proxy Statement dated March 17, 2006 for Annual Meeting of Stockholders to be held April 11, 2006, included in this report as Exhibit 99, is incorporated herein by reference.    19    Table of Contents  PART IV   Item 15 Exhibits and Financial Statement Schedules      (a) Financial Statements Filed; Financial Statement Schedules  The following consolidated financial statements of First West Virginia Bancorp, Inc. and its subsidiary, included in the Annual Report to Shareholders for the year ended December 31, 2005, are incorporated by reference in Item 8:               Exhibit 13.1Page Number   Report of Independent Registered Public Accounting Firm    21      Consolidated Balance Sheet (December 31, 2005 and December 31, 2004)    2      Consolidated Statements of Income (Years ended December 31, 2005, 2004 and 2003)    3      Consolidated Statements of Changes in Stockholders’ Equity (Years ended December 31, 2005, 2004 and 2003)    4      Consolidated Statements of Cash Flows (Years ended December 31, 2005, 2004 and 2003)    5      Notes to Consolidated Financial Statements (Years ended December 31, 2005, 2004 and 2003)    6-20      (b) Reports on Form 8-K  On November 10, 2005 a report on Form 8-K was filed which contained a press release dated November 9, 2005 that reported the earnings of First West Virginia Bancorp, Inc. for the third quarter ended September 30, 2005.      (c) Exhibits  The exhibits listed in the Exhibit Index on page 22 of this FORM 10-K are filed herewith or incorporated by reference.    20    Table of Contents  SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.          First West Virginia Bancorp, Inc.                  (Registrant)     By:    /s/ Sylvan J. Dlesk     Sylvan J. Dlesk     Chairman/Interim President and Chief Executive Officer /Director     Date:   March 22, 2006  Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.             Signatures     Title     Date       /s/ Sylvan J. Dlesk Sylvan J. Dlesk    Chairman and Director    March 22, 2006              /s/ Francie P. Reppy Francie P. Reppy     Executive Vice President, Chief Administrative Officer Chief Financial Officer, Treasurer     March 22, 2006                      /s/ Nada E. Beneke    Director    March 22, 2006  Nada E. Beneke               /s/ Gary W. Glessner    Director    March 22, 2006  Gary W. Glessner               /s/ Laura G. Inman    Director    March 22, 2006  Laura G. Inman               /s/ James C. Inman, Jr.    Director    March 22, 2006  James C. Inman, Jr.               /s/ R. Clark Morton    Director    March 22, 2006  R. Clark Morton               /s/ Thomas A. Noice    Director    March 22, 2006  Thomas A. Noice               /s/ William G. Petroplus    Director    March 22, 2006  William G. Petroplus               /s/ Thomas L. Sable    Director    March 22, 2006  Thomas L. Sable            21    Table of Contents  EXHIBIT INDEX  The following exhibits are filed herewith and/or are incorporated herein by reference.          ExhibitNumber    Description  3.1    Certificate and Articles of Incorporation of First West Virginia Bancorp, Inc. Incorporated herein by reference.     3.2    Bylaws of First West Virginia Bancorp, Inc. Incorporated herein by reference.     10.3   Lease dated July 20, 1993 between Progressive Bank, N.A., formerly known as “First West Virginia Bank, N.A.”, and Angela I. Stauver. Incorporated herein by reference.     10.4   Banking Services License Agreement dated October 26, 1994 between Progressive Bank, N.A., formerly known as “First West Virginia Bank, N.A.”, and The Kroger Co. Incorporated herein by reference.     10.5   Lease dated November 14, 1995 between Progressive Bank, N.A. - Buckhannon and First West Virginia Bancorp, Inc. and O. V. Smith & Sons of Big Chimney, Inc. Incorporated herein by reference.     10.6   Lease dated May 20, 1998 between Progressive Bank, N.A. and Robert Scott Lumber Company. Incorporated herein by reference.     10.7   Lease dated May 12, 2001 between Progressive Bank, N.A. and Sylvan J. Dlesk and Rosalie J. Dlesk doing business as Dlesk Realty & Investment Company. Incorporated herein by reference.     10.8   Lease dated January 1, 2005 between Progressive Bank, N.A. and Elm Grove Properties LLC. Incorporated herein by reference.     11.1    Statement regarding computation of per share earnings. Filed herewith and incorporated herein by reference.     12.1    Statement regarding computation of ratios. Filed herewith and incorporated herein by reference.     13.1   Annual Report to Shareholders, as listed in Part II, Item 8 Filed herewith and incorporated herein by reference.     13.2   Management’s Report on Financial Statements Filed herewith and incorporated herein by reference.     14.1    Code of Ethics. Incorporated herein by reference.     21.1    Subsidiaries of the Holding Company. Filed herewith and incorporated herein by reference.     23    Consent of S.R. Snodgrass, A.C. Filed herewith and incorporated herein by reference.     31   Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Executive Officer pursuant to section 302 of the Securities and Exchange Act of 1934. Filed herewith and incorporated herein by reference.     31.1   Rule 13a-14(a) / 15d/14(a) Certifications - Certification of Chief Financial Officer pursuant to section 302 of the Securities and Exchange Act of 1934. Filed herewith and incorporated herein by reference.     32   Certification pursuant to 18 U.S.C. §1350,as adopted pursuant to section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith and incorporated herein by reference.     99   Proxy statement for the Annual Shareholders meeting to be held April 11, 2006 Filed herewith and incorporated herein by reference.    22      EX-11.1 2 dex111.htm STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS   Statement Regarding Computation Of Per Share Earnings   EXHIBIT 11.1  Statement Regarding Computation of Per Share Earnings  Computation of Earnings Per Share  The following formula was used to calculate the earnings per share, page 3, Consolidated Statements of Income for the year ended December 31, 2005, 2004 and 2003, included in this report as Exhibit 13.1.  (Calculation)  Net Income / Weighted average shares of common stock outstanding for the period = Earnings Per Share                      December 31,       2005    2004    2003   Weighted Average Shares Outstanding      1,528,443      1,528,443      1,537,292        Net Income    $ 2,262,265    $ 2,637,325    $ 2,518,241        Per Share Amount    $ 1.48    $ 1.73    $ 1.64      EX-12.1 3 dex121.htm STATEMENT REGARDING COMPUTATION OF RATIOS   Statement Regarding Computation Of Ratios   EXHIBIT 12.1  Statement Regarding Computation of Ratios    Computation of Ratios  The following formulas were used to calculate the ratios in Financial Information and Supplementary Data, page 21, Selected Financial Data for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, included in this report as Exhibit 13.1.  (Calculation)  Net Income / Weighted average shares of common stock outstanding for the period = Earnings Per Share                            December 31,       2005    2004    2003    2002    2001   Net Income    $ 2,262,265    $ 2,637,325    $ 2,518,241    $ 2,673,817    $ 2,412,403          Weighted Average Shares Outstanding      1,528,443      1,528,443      1,537,292      1,538,443      1,538,443          Per Share Amount    $ 1.48    $ 1.73    $ 1.64    $ 1.74    $ 1.57  (Calculation)  Cash dividends/ Shares issued = Cash dividends declared per share                            December 31,       2005    2004    2003    2002    2001   Cash dividends    $ 1,161,616    $ 1,161,616    $ 1,123,063    $ 1,061,526    $ 1,046,041   Shares issued      1,528,443      1,528,443      1,537,292      1,538,443      1,538,443          Per Share Amount    $ .76    $ .76    $ .73    $ .69    $ .68  (Calculation)  Stockholders’ Equity/ Shares issued = Book Value per share                            December 31,       2005    2004    2003    2002    2001   Stockholders’ Equity    $ 23,958,629    $ 23,953,036    $ 23,030,615    $ 22,459,633    $ 20,248,968          Shares issued      1,528,443      1,528,443      1,528,443      1,538,443      1,538,443          Per Share Amount    $ 15.68    $ 15.67    $ 15.07    $ 14.60    $ 13.16    (Calculation)  Net Income / Total average assets = Return on Average Assets                                  (In thousands) December 31,         2005     2004     2003     2002     2001     Net Income    $ 2,262     $ 2,637     $ 2,518     $ 2,674     $ 2,412            Total Average Assets    $ 270,500     $ 284,930     $ 277,952     $ 252,543     $ 217,006            Return on Average Assets      .84 %     .93 %     .91 %     1.06 %     1.11 %  (Calculation)  Net Income / Average stockholders’ equity = Return on Average Equity                                  (In thousands) December 31,         2005     2004     2003     2002     2001     Net Income    $ 2,262     $ 2,637     $ 2,518     $ 2,674     $ 2,412            Total Average Stockholders’ Equity    $ 24,409     $ 23,092     $ 21,884     $ 20,302     $ 18,902            Return on Average Equity      9.27 %     11.42 %     11.51 %     13.17 %     12.76 %  (Calculation)  Average Equity / Average stockholders’ equity = Average Equity to Average Assets                                  (In thousands) December 31,         2005     2004     2003     2002     2001     Total Average Stockholders’ Equity    $ 24,409     $ 23,092     $ 21,884     $ 20,302     $ 18,902            Total Average Assets    $ 270,500     $ 284,930     $ 277,952     $ 252,543     $ 217,006            Average Equity to Average Assets      9.02 %     8.10 %     7.87 %     8.04 %     8.71 %    (Calculation)  Cash dividends per share / Net income per share = Dividend Payout Ratio                                 December 31,         2005     2004     2003     2002     2001     Cash dividends per share    $ .76     $ .76     $ .73     $ .69     $ .68            Net income per share    $ 1.48     $ 1.73     $ 1.64     $ 1.74     $ 1.57            Dividend Payout Ratio      51.35 %     43.93 %     44.51 %     39.66 %     43.31 %  (Calculation)  Loans/ Total deposits = Loan to Deposit Ratio                                 December 31,         2005     2004     2003     2002     2001     Loans    $ 135,214,258     $ 154,331,037     $ 146,710,494     $ 136,771,760     $ 120,943,839            Total deposits    $ 218,817,301     $ 236,171,007     $ 241,947,330     $ 231,375,582     $ 203,771,954            Loan to Deposit Ratio      61.79 %     65.35 %     60.64 %     59.11 %     59.35 %      EX-13.1 4 dex131.htm ANNUAL REPORT TO SHAREHOLDERS   Annual Report to Shareholders   EXHIBIT 13.1  Annual Report to Shareholders    (FIRST WEST VIRGINIA BANCORP LETTERHEAD)  P.O. Box 6671  Wheeling, WV 26003  TO OUR SHAREHOLDERS:  I am pleased for the opportunity to present you with the financial performance contained in the 2005 Annual Report of First West Virginia Bancorp, Inc. Consolidated net income for 2005 was $2,262,265 or $1.48 per share, as compared to $2,637,325 or $1.73 per share a year earlier. Total assets for the Holding Company decreased 4.9% over the prior year to $266,213,400 at December 31, 2005 as compared to $279,801,745 at December 31, 2004. Total stockholders’ equity increased to $23,958,629 as compared to $23,953,036 reported in 2004. The book value per share was $15.68 at December 31, 2005 as compared to $15.67 a year earlier.  The Board of Directors declared and paid cash dividends of $.76 per share during 2005 and 2004.  The Company continues to make great strides in addressing the December, 2004 Formal Agreement between the Company’s subsidiary bank, Progressive Bank, N.A. and the Office of the Comptroller of the Currency. One part of the Formal Agreement required the Company’s subsidiary bank to achieve and maintain Tier 1 leverage and capital ratios of 7.5% and 13.0%, respectively. I am delighted to report that Progressive Bank’s capital ratios have exceeded the required minimums set forth in the agreement since June, 2005. The Board of Directors, as well as bank management, has taken considerable steps over the past year in resolving all of the items set forth in the agreement. Increased expenses in complying with the agreement had a material impact on the Company’s earnings throughout 2005. To this effort, it is with great resolve and determination, that we efficiently complete the requirements of the agreement and maintain our reputation as a strong and highly respected financial institution in the community.  Also, during the third quarter of 2005, our subsidiary bank entered into an agreement with the Federal Home Loan Bank of Pittsburgh to initiate the underwriting of secondary market loans. With the implementation of this program we believe our bank will remain competitive in the home mortgage market area.  Furthermore, Thomas L. Sable and Gary W. Glessner were added as directors to the Board of Directors of First West Virginia Bancorp, Inc. Mr. Sable is the owner of Bellaire Hardware and is a managing partner of The Summit Atlantic Group, LLC. He previously served on the board of directors of Farmers and Merchants Bank from 1989 to 1997 until the bank merged with Progressive Bank, N.A. and has served as a director on Progressive Bank’s board since the merger. Mr. Glessner is a Certified Public Accountant and is President/Owner of Glessner & Associates, PLLC, a local public accounting firm. He is also a registered representative with HD Vest Financial Services, a subsidiary of Wells Fargo Bank and is a licensed life and health insurance agent. We are certain their expertise and professionalism will augment our Board.  Once again it is with my sincere gratitude and deep appreciation I acknowledge our officers and employees for their passion, dedication, and perseverance demonstrated throughout the year. The loyalty of our customers, commitment and tenaciousness of our Board, and loyal support of our shareholders enabled us to accomplish many goals this year. We greet year 2006 with much confidence and vigor and anticipate emerging much stronger with a very defined vision and solid mission for our Company.        Sincerely,    Sylvan J. Dlesk  Chairman of the Board  Interim President and Chief Executive Officer    First West Virginia Bancorp, Inc. and Subsidiary  CONSOLIDATED BALANCE SHEETS                     December 31,         2005     2004    ASSETS              Cash and due from banks    $ 5,929,513     $ 5,474,000     Due from banks - interest bearing      1,066,142       491,166     Federal funds sold      4,753,000       2,155,000                        Total cash and cash equivalents      11,748,655       8,120,166     Investment securities:              Available-for-sale (at fair value)      106,222,137       103,736,472     Held-to-maturity (fair value of $1,810,834 and $2,927,330, respectively)      1,776,295       2,824,579     Loans      135,214,258       154,331,037     Less allowance for loan losses      (2,319,871 )     (2,356,101 )                      Net loans      132,894,387       151,974,936     Premises and equipment, net      4,166,929       3,855,870     Accrued income receivable      1,255,328       1,259,205     Other intangible assets      192,295       281,046     Goodwill      1,644,119       1,644,119     Bank owned life insurance      3,193,977       3,080,724     Other assets      3,119,278       3,024,628                        Total assets    $ 266,213,400     $ 279,801,745                       LIABILITIES              Noninterest bearing deposits:              Demand    $ 26,044,841     $ 26,288,924     Interest bearing deposits:              Demand      36,891,497       37,493,712     Savings      70,288,524       86,900,317     Time      85,592,439       85,488,054                        Total deposits      218,817,301       236,171,007     Federal funds purchased and securities sold under agreements to repurchase      19,084,324       15,759,200     Federal Home Loan Bank borrowings      2,384,893       2,425,111     Other long-term borrowings      1,000,000       —       Accrued interest payable      404,372       349,357     Other liabilities      563,881       1,144,034                        Total liabilities      242,254,771       255,848,709                       STOCKHOLDERS’ EQUITY              Common stock - 2,000,000 shares authorized at $5 par value:              1,538,443 shares issued at December 31, 2005 and 2004      7,692,215       7,692,215     Treasury stock - 10,000 shares at cost:      (228,100 )     (228,100 )   Surplus      4,982,606       4,982,606     Retained earnings      12,538,056       11,437,407     Accumulated other comprehensive income (loss)      (1,026,148 )     68,908                        Total stockholders’ equity      23,958,629       23,953,036                        Total liabilities and stockholders’ equity    $ 266,213,400     $ 279,801,745                       The accompanying notes are an integral part of the consolidated financial statements.    2    First West Virginia Bancorp, Inc. and Subsidiary  CONSOLIDATED STATEMENTS OF INCOME                      Year Ended December 31,       2005    2004    2003  INTEREST AND DIVIDEND INCOME                  Loans, including fees:                  Taxable    $ 8,558,205    $ 8,930,710    $ 8,740,836   Tax-exempt      649,553      641,440      587,579   Debt securities:                  Taxable      3,047,213      3,064,050      3,186,339   Tax-exempt      637,600      660,330      688,191   Dividends      16,452      10,864      16,592   Other interest income      41,147      21,941      27,189   Interest on federal funds sold      178,087      76,784      72,088                          Total interest and dividend income      13,128,257      13,406,119      13,318,814                         INTEREST EXPENSE                  Deposits      3,574,439      3,791,975      4,378,071   Federal funds purchased and repurchase agreements      311,763      286,053      199,173   FHLB and other long-term borrowings      184,299      116,561      25,738                          Total interest expense      4,070,501      4,194,589      4,602,982                          Net interest income      9,057,756      9,211,530      8,715,832       PROVISION FOR LOAN LOSSES      180,000      300,000      435,000                          Net interest income after provision for loan losses      8,877,756      8,911,530      8,280,832                         NONINTEREST INCOME                  Service charges and other fees      775,588      799,593      756,288   Net gains on available for sale securities      118,433      4,765      213,718   Other operating income      483,682      479,258      376,106                          Total noninterest income      1,377,703      1,283,616      1,346,112                         NONINTEREST EXPENSE                  Salary and employee benefits      3,768,693      3,563,858      3,356,659   Net occupancy expense of premises      1,133,282      1,050,851      968,135   Other operating expenses      2,549,450      2,132,098      2,016,949                          Total noninterest expense      7,451,425      6,746,807      6,341,743                          Income before income taxes      2,804,034      3,448,339      3,285,201       INCOME TAXES      541,769      811,014      766,960                          Net income    $ 2,262,265    $ 2,637,325    $ 2,518,241                         WEIGHTED AVERAGE SHARES OUTSTANDING      1,528,443      1,528,443      1,537,292                         EARNINGS PER COMMON SHARE    $ 1.48    $ 1.73    $ 1.64                         The accompanying notes are an integral part of the consolidated financial statements.    3    First West Virginia Bancorp, Inc. and Subsidiary  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY                                         Common Stock    Surplus    RetainedEarnings     TreasuryStock     AccumulatedOtherComprehensiveIncome (loss)     ComprehensiveIncome     Total         Shares    Amount                BALANCE, DECEMBER 31, 2002    1,538,443    $ 7,692,215    $ 4,982,606    $ 8,566,520       —       $ 1,218,292          $ 22,459,633     Comprehensive income:                                           Net income    —        —        —        2,518,241       —         —       $ 2,518,241       2,518,241     Other comprehensive income, net of tax                                           Unrealized loss on securities net of reclassification adjustment (see disclosure)    —        —        —        —         —         (596,096 )     (596,096 )     (596,096 )                                                Comprehensive income                                 $ 1,922,145                                                       Cash dividend ($.73 per share)    —        —        —        (1,123,063 )     —         —              (1,123,063 )   Treasury shares purchased (10,000 shares)                         (228,100 )               (228,100 )                                                              BALANCE, DECEMBER 31, 2003    1,538,443      7,692,215      4,982,606      9,961,698       (228,100 )     622,196            23,030,615     Comprehensive income:                                           Net income    —        —        —        2,637,325       —         —       $ 2,637,325       2,637,325     Other comprehensive income, net of tax                                           Unrealized loss on securities net of reclassification adjustment (see disclosure)    —        —        —        —         —         (553,288 )     (553,288 )     (553,288 )                                                Comprehensive income                                 $ 2,084,037                                                       Cash dividend ($.76 per share)    —        —        —        (1,161,616 )     —         —              (1,161,616 )                                                              BALANCE, DECEMBER 31, 2004    1,538,443      7,692,215      4,982,606      11,437,407       (228,100 )     68,908            23,953,036                                                                Comprehensive income:                                           Net income    —        —        —        2,262,265       —         —       $ 2,262,265       2,262,265     Other comprehensive income, net of tax                                           Unrealized loss on securities net of reclassification adjustment (see disclosure)    —        —        —        —         —         (1,095,056 )     (1,095,056 )     (1,095,056 )                                                Comprehensive income                                 $ 1,167,209                                                       Cash dividend ($.76 per share)    —        —        —        (1,161,616 )     —         —              (1,161,616 )                                                              BALANCE, DECEMBER 31, 2005    1,538,443    $ 7,692,215    $ 4,982,606    $ 12,538,056     $ (228,100 )   $ (1,026,148 )        $ 23,958,629                                                                                      2005     2004     2003     Disclosure of reclassification amount:                   Unrealized holding losses arising during the period    $ (1,021,189 )   $ (550,316 )   $ (462,800 )        Less reclassification adjustment for gains included in net income      73,867       2,972       133,296                                Net unrealized losses on securities    $ (1,095,056 )   $ (553,288 )   $ (596,096 )                             The accompanying notes are an integral part of the consolidated financial statements.    4    First West Virginia Bancorp, Inc. and Subsidiary  CONSOLIDATED STATEMENTS OF CASH FLOWS                         Year Ended December 31,         2005     2004     2003    OPERATING ACTIVITIES                   Net income    $ 2,262,265     $ 2,637,325     $ 2,518,241     Adjustments to reconcile net income to net cash provided by operating activities:                   Provision for loan losses      180,000       300,000       435,000     Depreciation and amortization      453,351       441,131       436,055     Amortization of investment securities, net      288,848       575,997       965,321     Investment security gains      (118,433 )     (4,765 )     (213,718 )   Gain on sales of assets      (9,835 )     (45,570 )     (436 )   Increase in cash surrender value of bank-owned life insurance      (113,253 )     (80,724 )     —       Decrease in interest receivable      3,877       16,641       9,093     Decrease (increase) in interest payable      55,015       (35,460 )     (108,452 )   Other, net      (14,118 )     (450,299 )     (536,549 )                              Net cash provided by operating activities      2,987,717       3,354,276       3,504,555                               INVESTING ACTIVITIES                   Net (increase) decrease in loans, net of charge-offs      18,850,853       (7,922,825 )     (10,104,870 )   Proceeds from sales of securities available-for-sale      3,142,149       8,408,557       9,792,306     Proceeds from maturities of securities available-for-sale      234,723,686       62,972,732       177,538,788     Proceeds from maturities of securities held-to-maturity      1,040,000       1,150,000       3,720,000     Principal collected on mortgage-backed securities      12,314,801       17,518,653       35,084,372     Purchases of securities available-for-sale      (254,584,173 )     (75,114,282 )     (242,723,086 )   Recoveries on loans previously charged-off      49,696       53,515       9,099     Purchase of bank owned life insurance      —         (3,000,000 )     —       Purchases of premises and equipment      (681,349 )     (290,874 )     (191,818 )   Proceeds from sales of assets      15,525       271,946       159,471                                Net cash provided by (used in) investing activities      14,871,188       4,047,422       (26,715,738 )                             FINANCING ACTIVITIES                   Net increase (decrease) in deposits      (17,353,706 )     (5,776,323 )     10,571,748     Dividends paid      (1,161,616 )     (1,161,616 )     (1,123,063 )   Treasury shares purchased      —         —         (228,100 )   Proceeds from issuance of long term debt      2,000,000       —         —       Repayment of long term debt      (1,000,000 )     —         —       Increase in short-term borrowings      3,325,124       670,366       6,051,032     Increase (decrease) in FHLB borrowings      (40,218 )     (38,353 )     2,463,464                                Net cash provided by (used in) financing activities      (14,230,416 )     (6,305,926 )     17,735,081                               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      3,628,489       1,095,772       (5,476,102 )       CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR      8,120,166       7,024,394       12,500,496                               CASH AND CASH EQUIVALENTS, END OF YEAR    $ 11,748,655     $ 8,120,166     $ 7,024,394                               Supplemental Disclosures:                   Cash Paid for Interest      4,015,486       4,230,049       4,711,434     Cash Paid for Income Taxes      645,000       990,000       950,000    The accompanying notes are an integral part of the consolidated financial statements.    5    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows.  Nature of Operations and Basis of Presentation: First West Virginia Bancorp, Inc. (the “Company”) is a West Virginia Company. The Company provides a variety of banking services to individuals and businesses through the branch network of its affiliate bank (the “Bank”). The Bank operates ten full service branches located in Wheeling (3), Wellsburg, Moundsville (2), 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.  Reclassifications: Certain prior year amounts have been reclassified to conform to the 2005 presentation.  Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.  Cash Flows: Cash and cash equivalents consist of cash on hand and amounts due from banks and federal funds sold.  Investment Securities: Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities available for sale or held to maturity. Debt securities classified as held to maturity are stated at cost adjusted for amortization of premium and accretion of discount which are computed using the interest method and recognized as adjustments of interest income. Certain other debt and equity securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders’ equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned.  Common stock of the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank represents ownership interest in institutions that are wholly owned by other financial institutions. These equity securities are accounted for at cost and are classified with other assets.  While temporary changes in the market value of available-for-sale securities are not recognized in earnings, a decline in fair value below amortized cost deemed to be other-than-temporary results in an adjustment to the cost basis of the investment, with a corresponding loss charged against earnings. Management evaluates the investment securities for other-than-temporary declines in estimated fair value on a quarterly basis. This analysis requires management to consider various factors in order to determine if a decline in estimated fair value is temporary or other-than-temporary. These factors include duration and magnitude of the decline in value, the financial condition of the issuer, and the company’s ability and intent to continue holding the investment for a period of time sufficient to allow for any anticipated recovery in market value. At December 31, 2005, 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.  Loans: 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. The Company accounts for impaired loans in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 114 and No. 118, “Accounting for Creditors for Impairment of a Loan.” It is the Company’s policy not to recognize interest income on specific impaired loans unless the likelihood of future loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the contractual life of the related loans or commitments as an adjustment of the related loan’s yield.  Allowance for Loan Losses: The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses that is charged to operations. The provision is based on management’s evaluation of the adequacy of the allowance for loan losses which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant changes in the near term.    6    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.  Mortgage loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances concerning the loan, the credit worthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed.  Individual loan reviews are based upon specific quantitative and qualitative criteria, including the size of the loan, loan quality ratings, value of collateral, repayment ability of borrowers, and historical experience factors. The historical experience factors utilized for individual loan reviews are based upon past loss experience, known trends in losses and delinquencies, the growth of loans in particular markets and industries, and known changes in economic conditions in the particular lending markets. Allowances for homogeneous loans (such as residential mortgage loans, personal loans, etc.) are evaluated based upon historical loss experience, trends in losses and delinquencies, growth of loans in particular markets, and known changes in economic conditions in each lending market. There can be no assurance the allowance for loan losses will be adequate to cover all losses, but management believes the allowance for loan losses in the amount of $2,319,871 at December 31, 2005, 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.  Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed generally using the straight-line method over the estimated useful lives of the assets.  When units of property are disposed of, the premises and equipment accounts are relieved of the cost and the accumulated depreciation related to such units. Any resulting gains or losses are credited to or charged against income. Cost of repairs and maintenance is charged to expense as incurred. Additions and improvements are capitalized at cost.  Goodwill and Other Intangible Assets The Company adopted SFAS No. 147, “Acquisitions of Certain Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9”. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both SFAS No. 72, “Accounting for Certain Acquisitions of Banking and Thrift Institutions” and FASB Interpretation No. 9, “Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. “SFAS No. 147 requires that these transactions be accounted for in accordance with FASB Statements No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” This statement also amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower- relationship intangible assets and credit cardholder intangible assets.  Goodwill resulted from the Company’s purchase of a less-than-whole financial institution (the “branch”). Upon adoption of FASB No. 147, the Company reclassified approximately $1.6 million of previously unidentifiable intangible assets to goodwill and ceased the regularly scheduled amortization expense of those intangible assets. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods.          An identifiable intangible asset resulted from the purchase of the core deposits of another financial institution in 2001 and, as such, are amortized into noninterest expense on the straight-line basis over the period the Company expects to benefit from such assets (7 years). The Company recognized amortization expense of $88,751 in the periods ending December 31, 2005, 2004 and 2003. The unamortized balance from the purchase of these core deposit intangible assets is $192,295 and $281,046 at December 31, 2005 and 2004, respectively. The estimated aggregate amortization expense for each of the succeeding years is as follows: $88,751 in 2006, $88,751 in 2007; and $14,793 in 2008. While management feels the assumptions and variables used to value the acquisition was reasonable, the use of different, but still reasonable, assumptions could produce different results.  Goodwill and other intangibles are periodically reviewed for impairment. No impairment losses were recognized. Additionally, future events could cause management to conclude that impairment indicators exist and that the goodwill is impaired, which would result in the Company recording an impairment loss. Any resulting impairment loss could have a material, adverse impact on the Company’s financial condition and results of operations.    7    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  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 $3,193,977 and $3,080,724 at December 31, 2005 and 2004, respectively. The face value of the bank-owned life insurance at December 31, 2005 was $9.1 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.  Other Real Estate Owned: Other real estate owned are carried at the lower of cost or their estimated current fair value, less estimated costs to sell and are included in other assets. Other real estate owned consist primarily of properties acquired through, or in lieu of foreclosures. Any subsequent declines in fair value, and gains or losses on the disposition of these assets are credited to or charged against income.  Income Taxes: The Company and its subsidiary file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period.  Advertising Costs: Advertising costs are expensed as the costs are incurred. Advertising expenses amounted to $133,403, $189,855 and $172,598 for 2005, 2004, and 2003, respectively.  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.  Comprehensive Income: The Company is required to present comprehensive income in a full set of general-purpose financial statements for all periods presented. Other comprehensive income comprises unrealized holding gains (losses) on the available-for-sale securities portfolio. The Company has elected to report the effects of other comprehensive income as part of the Consolidated Statement of Changes in Stockholders’ Equity.  The following table represents other comprehensive income before tax and net of tax:                         2005     2004     2003     Before-tax amount    $ (1,755,742 )   $ (887,106 )   $ (955,742 )   Tax effect      660,686       333,818       359,646                                Net of tax effect    $ (1,095,056 )   $ (553,288 )   $ (596,096 )                             Recent Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS No. 123R). FAS No. 123R revised FAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. FAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statement (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.  In April 2005, the Securities and Exchange Commission adopted a new rule that amends the compliance dates for FAS No. 123R. The Statement requires that compensation cost relating to share-based payment transactions be recognized in financial statements and that this cost be measured based on the fair value of the equity or liability instruments issued. FAS No. 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will adopt FAS No. 123R on January 1, 2006. The estimated compensation expense is not expected to be material to the Company’s results of operation or financial condition.  In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), Share-Based Payment, providing guidance on option valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of FAS No. 123R, and the disclosures in MD&A subsequent to the adoption. The Company will provide SAB No. 107 required disclosures upon adoption of FAS No. 123R on January 1, 2006.    8    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  In December 2004, FASB issued FAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. FAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of FAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.  In June 2005, the FASB issued FAS No. 154, Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. FAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impractical. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. FAS No.154 improves the financial reporting because its requirements enhance the consistency of financial reporting between periods. The provisions of FAS No. 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.  NOTE 2 - INVESTMENT SECURITIES  The amortized cost and estimated fair values of investment securities are as follows at December 31, 2005 and 2004:                          December 31, 2005       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses      Fair Value       (Expressed in thousands)   Securities held-to-maturity:                       Obligations of states and political subdivisions    $ 1,776    $ 35    $ —       $ 1,811                                  Total held-to-maturity      1,776      35      —         1,811                                 Securities available-for-sale:                       U.S. Treasury securities and obligations of U.S. Government corporations and agencies      41,351      21      (782 )     40,590   Obligations of states and political subdivisions      20,280      57      (349 )     19,988   Mortgage-backed securities      45,912      56      (714 )     45,254   Equity securities      324      85      (19 )     390                                  Total available-for-sale      107,867      219      (1,864 )     106,222                                  Total    $ 109,643    $ 254    $ (1,864 )   $ 108,033                                         December 31, 2004       AmortizedCost    GrossUnrealizedGains    GrossUnrealizedLosses      Fair Value       (Expressed in thousands)   Securities held-to-maturity:                       Obligations of states and political subdivisions    $ 2,825    $ 102    $ —       $ 2,927                                  Total held-to-maturity      2,825      102      —         2,927                                 Securities available-for-sale:                       U.S. Treasury securities and obligations of U.S. Government corporations and agencies      43,744      113      (267 )     43,590   Obligations of states and political subdivisions      17,148      215      (100 )     17,263   Corporate debt securities      2,802      46      —         2,848   Mortgage-backed securities      39,348      228      (186 )     39,390   Equity securities      584      98      (37 )     645                                  Total available-for-sale      103,626      700      (590 )     103,736                                  Total    $ 106,451    $ 802    $ (590 )   $ 106,663                                   9    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  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, 2005 and 2004:                                  2005         Less than Twelve Months     Twelve Months or Greater     Total         FairValue    GrossUnrealizedLosses     FairValue    GrossUnrealizedLosses     FairValue    GrossUnrealizedLosses         (Expressed in thousands)     U.S. Treasury securities and U.S. Government corporations and agencies    $ 16,217    $ (287 )   $ 19,426    $ (491 )   $ 35,643    $ (778 )   Obligations of states and political subdivisions      10,582      (173 )     5,317      (176 )     15,899      (349 )   Mortgage-backed securities      20,949      (305 )     13,999      (413 )     34,948      (718 )                                                   Total debt securities      47,748      (765 )     38,742      (1,080 )     86,490      (1,845 )           Equity securities      89      (1 )     77      (18 )     166      (19 )                                                   Total    $ 47,837    $ (766 )   $ 38,819    $ (1,098 )   $ 86,656    $ (1,864 )                                                          2004         Less than Twelve Months     Twelve Months or Greater     Total         FairValue    GrossUnrealizedLosses     FairValue    GrossUnrealizedLosses     FairValue    GrossUnrealizedLosses         (Expressed in thousands)     U.S. Treasury securities and U.S. Government corporations and agencies    $ 29,549    $ (263 )   $ —      $ —       $ 29,549    $ (263 )   Obligations of states and political subdivisions      6,313      (83 )     472      (17 )     6,785      (100 )   Mortgage-backed securities      18,443      (133 )     2,765      (57 )     21,208      (190 )                                                   Total debt securities      54,305      (479 )     3,237      (74 )     57,542      (553 )           Equity securities      94      (20 )     109      (17 )     203      (37 )                                                   Total    $ 54,399    $ (499 )   $ 3,346    $ (91 )   $ 57,745    $ (590 )                                                  The Company’s investment securities portfolio contains unrealized losses of direct obligations of the U.S. Treasury and U.S. Government agency securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, and debt obligations of a U.S. state or political subdivision.  On a monthly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio unless the company has the ability to hold the security to maturity without incurring a loss. Generally, impairment is considered other than temporary when an investment security has sustained a decline in market value of ten percent or more for a period of six months.  The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes, sector rating changes, or company-specific rating changes that are not expected to result in the noncollection of principal and interest, during the period. There are 81 positions that are temporarily impaired at December 31, 2005.  The amortized cost and estimated market value of investment securities at December 31, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.    10    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 2 - INVESTMENT SECURITIES (CONTINUED)                         SecuritiesHeld-to-Maturity    SecuritiesAvailable-for-Sale       AmortizedCost    FairValue    AmortizedCost     Fair Value       (Expressed in thousands)   Due in one year or less    $ 645    $ 648    $ 10,093    $ 9,994   Due after one year through five years      1,034      1,058      36,699      35,998   Due after five years through ten years      97      105      7,893      7,759   Due after ten years      —        —        6,947      6,827                                      1,776      1,811      61,632      60,578   Mortgage-backed securities      —        —        45,911      45,254   Equity securities      —        —        324      390                                 Total    $ 1,776    $ 1,811    $ 107,867    $ 106,222                                Proceeds from sales of securities available-for-sale during the years ended December 31, 2005, 2004, and 2003, were $3,142,149, $8,408,557, and $9,792,306, respectively. Gross gains of $144,771 and gross losses of $26,338 in 2005; gross gains of $14,277 and gross losses of $9,512 in 2004; and gross gains of $253,288 and gross losses of $39,570 in 2003, were realized on those sales. Assets carried at $44,021,000 and $37,778,000 at December 31, 2005 and 2004, 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, 2005 and 2004, are as follows:                   (Expressed in Thousands)       2005    2004   Real estate - construction    $ 759    $ 1,841   Real estate - farmland      405      263   Real estate - residential      44,042      49,754   Real estate-secured by non-farm, non-residential      46,587      51,699   Commercial and industrial loans      13,721      18,092   Installment and other loans to individuals      16,648      18,324   Non-rated industrial development obligations      13,213      14,538   Other loans      43      40                   Total    $ 135,418    $ 154,551   Less unearned interest and deferred fees      204      220                   Net loans    $ 135,214    $ 154,331                  Non-accrual loans amounted to $1,366,960 and $1,440,929 at December 31, 2005 and 2004, respectively. The amount of interest income that would have been recognized had the loans performed in accordance with their original terms was $117,900 and $105,700 for 2005 and 2004, respectively.  NOTE 4 - ALLOWANCE FOR LOAN LOSSES  Activity in the allowance for loan losses is summarized as follows:                      December 31,       2005    2004    2003   Balance at beginning of year    $ 2,356,101    $ 2,304,868    $ 2,026,905   Additions charged to operating expense      180,000      300,000      435,000   Recoveries      49,696      53,515      9,099                          Total      2,585,797      2,658,383      2,471,004   Less loans charged-off      265,926      302,282      166,136                          Balance at end of year    $ 2,319,871    $ 2,356,101    $ 2,304,868                           11    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)  The following is a summary of information pertaining to impaired and non-accrual loans:                       (Expressed in Thousands) December 31,            2005    2004    2003   Impaired loans without a valuation allowance    $ 381    $ 343    $ 502   Impaired loans with a valuation allowance      986      1,098      1,597                          Total impaired loans    $ 1,367    $ 1,441    $ 2,099                          Valuation allowance related to impaired loans    $ 80    $ 269    $ 507                                 (Expressed in Thousands)December 31,           2005    2004    2003   Total non-accrual loans    $ 1,367    $ 1,441    $ 2,099   Total loans past-due 90 days or more and still accruing    $ 90    $ 17    $ 58          (Expressed in Thousands)December 31,       2005    2004    2003   Average investment in impaired loans    $ 1,840    $ 1,678    $ 2,406                          Interest income recognized on impaired loans      —        —        —                            Interest income recognized on a cash basis on impaired loans      —        —        —                           No additional funds are committed to be advanced in connection with impaired loans.  NOTE 5 - PREMISES AND EQUIPMENT  Premises and equipment are stated at cost, less accumulated depreciation, as follows:                     December 31,     OriginalUseful Life Years       2005    2004      Land    $ 1,935,514    $ 1,496,503       Land improvements      296,527      296,527    20   Leasehold improvements      404,598      404,598    25   Buildings      3,766,478      3,760,650    20-50   Furniture, fixtures & equipment      3,322,215      3,106,187    3 - 8                       Total      9,725,332      9,064,465       Less accumulated depreciation      5,558,403      5,208,595                           Premises and equipment, net    $ 4,166,929    $ 3,855,870                          Charges to operations for depreciation approximated $364,600, $352,380, and $347,304 for 2005, 2004, and 2003, respectively.    12    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 6 - DEPOSITS  The composition of the Bank’s deposits at December 31 follows:                          (Expressed in Thousands) 2005       Demand    Savings    Time       NoninterestBearing    InterestBearing         Individuals, partnerships and corporations (includes certified and official checks)    $ 25,339    $ 32,087    $ 68,597    $ 82,856   United States Government      29      —        —        —     States and political subdivisions      553      4,804      1,692      2,586   Commercial banks and other depository institutions      124      —        —        150                                 Total    $ 26,045    $ 36,891    $ 70,289    $ 85,592                                         (Expressed in Thousands) 2004       Demand    Savings    Time       NoninterestBearing    InterestBearing         Individuals, partnerships and corporations (includes certified and official checks)    $ 25,545    $ 33,677    $ 84,696    $ 82,654   United States Government      26      —        —        —     States and political subdivisions      573      3,817      2,204      2,684   Commercial banks and other depository institutions      145      —        —        150                                 Total    $ 26,289    $ 37,494    $ 86,900    $ 85,488                                Time deposits include certificates of deposit issued in denominations of $100,000 or more which amounted to $22,355,000 and $20,126,000 at December 31, 2005 and 2004, respectively. Interest expense on certificates of deposit of $100,000 or more was $671,000, $675,000 and $889,000 at December 31, 2005, 2004, and 2003, respectively.  A maturity distribution of time certificates of deposit at December 31, 2005, follows:                Amount   Due in 2006    $ 46,900,000   Due in 2007      17,288,000   Due in 2008      7,036,000   Due in 2009      7,421,000   Due in 2010      6,744,000   Due in 2011 and thereafter      203,000            Total    $ 85,592,000           NOTE 7 - INCOME TAX  The provisions for income taxes at December 31 consist of:                        2005    2004     2003     Currently payable:                   Federal    $ 422,522    $ 752,530     $ 794,312     State      116,913      191,962       168,432     Deferred:                   Federal      1,837      (113,970 )     (166,936 )   State      497      (19,508 )     (28,848 )                             Income tax expense    $ 541,769    $ 811,014     $ 766,960                                13    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 7 - INCOME TAX (CONTINUED)  The following temporary differences gave rise to the deferred tax asset at December 31:                     2005     2004     Allowance for loan losses    $ 825,112     $ 810,475     Deferred loan fees      69,426       74,645     Accrued interest on nonperforming loans      156,350       116,444     Deferred compensation      113,382       212,550     Deferred directors’ fees      9,588       9,588     Depreciation      38,287       14,572     Amortization      77,785       60,016     Deferred state income tax      (70,946 )     (71,406 )                      Total deferred tax asset - federal      1,218,984       1,226,884     Total deferred tax asset - state      208,665       210,017                             1,427,649       1,436,901     Deferred tax assets (liabilities) arising from market adjustments of securities available for sale:              Federal      528,622       (35,497 )   State      90,489       (6,077 )                      Net deferred tax assets    $ 2,046,760     $ 1,395,327                       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:                                  2005     2004     2003         Amount     Percent     Amount     Percent     Amount     Percent     Computed tax at statutory federal rate    $ 953,372     34.0 %   $ 1,172,435     34.0 %   $ 1,116,968     34.0 %   Plus state income taxes net of federal tax benefits      77,491     2.8 %     98,892     2.9 %     93,672     2.8 %                                                     1,030,863     36.8 %     1,271,327     36.9 %     1,210,640     36.8 %   Increase (decrease) in taxes resulting from:                               Tax exempt income      (437,632 )   (15.6 )%     (443,697 )   (12.9 )%     (434,683 )   (13.2 )%   Nontaxable goodwill      (37,267 )   (1.3 )%     (37,267 )   (1.1 )%     (37,267 )   (1.1 )%   Nondeductible interest expense      32,396     1.1 %     32,256     0.9 %     34,734     1.0 %   Bank-owned life insurance      (38,506 )   (1.4 )%     (27,446 )   (0.8 )%     —       —       Other - net      (8,085 )   (0.3 )%     15,841     0.5 %     (6,464 )   (0.2 )%                                                Actual tax expense    $ 541,769     19.3 %   $ 811,014     23.5 %   $ 766,960     23.3 %                                               NOTE 8 - 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 $98,070, $172,000, and $162,000 for the years ended December 31, 2005, 2004, and 2003, 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 $23,726, $24,209, and $22,934 in 2005, 2004, and 2003, respectively.  NOTE 9 - 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 is summarized below:                     2005     2004     Balance at end of year    $ 19,084,324     $ 15,759,200     Average balance during the year      13,890,199       16,895,596     Maximum month-end balance      19,084,324       21,915,762     Weighted-average rate during the year      2.24 %     1.69 %   Rate at December 31      2.80 %     1.79 %  The subsidiary bank had no significant activity in federal funds purchased during 2005 and 2004.    14    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 10 - 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, 2005 was approximately $91.1 million subject to the purchase of additional FHLB stock. The subsidiary bank had FHLB borrowings of $2,384,893 and $ 2,425,111 at December 31, 2005 and 2004, respectively, with an interest rate of 4.76%. The subsidiary bank also has a one year line of credit agreement with the Federal Home Loan Bank (“FHLB”). The maximum credit available under this agreement is $7 million and expires December 2006.  Contractual maturities of FHLB borrowings as of December 31, 2005 were as follows:            December 31, 2006    $  42,175   December 31, 2007      44,226   December 31, 2008      46,378   December 31, 2009      48,634   December 31, 2010      50,999   Thereafter      2,152,481               $ 2,384,893           NOTE 11 - OTHER BORROWINGS  The Company obtained a non-revolving line of credit in the amount of $3 million from a financial institution during the second quarter of 2005. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjustable quarterly. The note matures in May 2015. The Company’s initial borrowing under the loan amounted to $2 million. At December 31, 2005 outstanding borrowings amounted to $1,000,000 with an interest rate of 7.25%.  The subsidiary bank of the Company has a one year line of credit agreement with the Federal Home Loan Bank (“FHLB”). The maximum credit available under this agreement is $7 million and expires December 2006. There were no borrowings outstanding under this agreement at December 31, 2005 and 2004, respectively.  NOTE 12 - COMMITMENTS AND CONTINGENCIES  The subsidiary Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.  The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.  The following represents financial instruments whose contract amounts represent credit risk:                   2005    2004   Commitments to extend credit    $ 14,202,000    $ 19,979,000   Standby letters of credit      539,000      602,000  As of December 31, 2005, approximately $3,534,000 are fixed interest rate commitments and $11,207,000 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 $369,000 expire in 2006, $100,000 in 2009, $35,000 in 2012 and $35,000 in 2015. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company and its subsidiary are parties to various legal and administrative proceedings and claims. Although any litigation contains an element of uncertainty, management believes that the outcome of these events will not have a material effect on the financial position of the Company.    15    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 13 - 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, 2005 concentrations of credit were as follows:                   Amount    Percent of Tier 1 Capital     Lessors of Residential Buildings and Dwellings    $ 13,928,392    60.2 %   Lessors of Nonresidential Buildings      11,998,112    51.9 %  NOTE 14 - 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 $3,394,123 at December 31, 2005, and $4,978,829 at December 31, 2004.  The following is an analysis of loan activity to directors, executive officers, and associates of the Company and its subsidiary:                     December 31,         2005     2004     Balance, January 1    $ 4,978,829     $ 4,665,813     New loans during the period      631,503       2,245,527     Repayments during the period      (2,216,209 )     (1,932,511 )                      Ending balance    $ 3,394,123     $ 4,978,829                       The Company’s subsidiary bank entered into a lease agreement to rent property for use as banking premises from a company owned by one of the Company’s directors. The lease has an initial term of 5 years, at an annual rental fee of $57,600, with options to renew for eight 5-year terms.  NOTE 15 - LEASES  The Company’s Bank affiliates leased certain land used for banking purposes under long-term leases, expiring at various dates. These leases contain renewal options and generally provide that the Company will pay for insurance, taxes, and maintenance.  As of December 31, 2005, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are as follows:            December 31, 2006    $  197,122   December 31, 2007      90,282   December 31, 2008      85,482   December 31, 2009      85,482   December 31, 2010      43,302   Thereafter      129,906  Rental expense under operating leases approximated $214,092 in 2005; $165,000 in 2004; and $164,000 in 2003.  NOTE 16 - OTHER OPERATING EXPENSES  Other operating expenses at December 31 included the following:                      2005    2004    2003   Directors’ fees    $ 178,575    $ 126,175    $ 114,575   Stationery and supplies      170,350      141,031      155,236   Regulatory assessment and deposit insurance      187,384      117,354      121,999   Advertising      133,403      189,855      172,598   Postage and transportation      220,214      207,795      208,344   Other taxes      168,975      165,153      177,216   Service expense      427,751      376,041      320,556   Other      1,062,798      808,694      746,425                          Total    $ 2,549,450    $ 2,132,098    $ 2,016,949                           16    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 17 - 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, 2005 and 2004, were $2,618,000 and $2,821,000, respectively.  NOTE 18 - LIMITATIONS ON DIVIDENDS  Under the terms of the Formal Agreement as discussed in Note 19, the subsidiary bank cannot declare a dividend in 2006 without approval of the Comptroller of the Currency. The subsidiary bank is the primary source of funds to pay dividends to the stockholders of First West Virginia Bancorp, Inc. As discussed later, the Company and the subsidiary bank are prohibited from paying dividends without regulatory approval.  NOTE 19 - REGULATORY MATTERS  The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk, weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to adjusted total assets (as defined).  As of December 31, 2005, the most recent notifications from the Office of the Comptroller of the Currency categorized the bank as adequately 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 and the regulatory framework for adequately capitalized institutions are depicted as set forth in the following table:                         Actual     For CapitalAdequacy Purposes     (Amounts Expressed in Thousands)      Amount    Ratio     Amount    Ratio     As of December 31, 2005                      Holding Company Total Capital (to Risk Weighted Assets)    $ 25,073    16.08 %   $ 12,476    8.0 %   Holding Company Tier I Capital (to Risk Weighted Assets)      23,124    14.83 %     6,238    4.0 %   Holding Company Tier I Capital (to Adjusted Total Assets)      23,124    8.83 %     10,480    4.0 %         Subsidiary Bank Total Capital (to Risk Weighted Assets)    $ 25,701    16.53 %   $ 12,442    8.0 %   Subsidiary Bank Tier I Capital (to Risk Weighted Assets)      23,752    15.27 %     6,221    4.0 %   Subsidiary Bank Tier I Capital (to Adjusted Total Assets)      23,752    9.09 %     10,449    4.0 %         As of December 31, 2004                      Holding Company Total Capital (to Risk Weighted Assets)    $ 22,745    12.97 %   $ 14,033    8.0 %   Holding Company Tier I Capital (to Risk Weighted Assets)      20,561    11.72 %     7,016    4.0 %   Holding Company Tier I Capital (to Adjusted Total Assets)      20,561    7.24 %     11,366    4.0 %         Subsidiary Bank Total Capital (to Risk Weighted Assets)    $ 22,417    12.84 %   $ 13,965    8.0 %   Subsidiary Bank Tier I Capital (to Risk Weighted Assets)      20,233    11.59 %     6,983    4.0 %   Subsidiary Bank Tier I Capital (to Adjusted Total Assets)      20,233    7.14 %     11,332    4.0 %  The “Formal Agreement” discussed below requires Tier 1 capital at least equal to thirteen percent (13%) of risk-weighted assets and Tier 1 capital at least equal to seven and one half percent (7.5%) of adjusted total assets by March 31, 2005.  In December, 2004, the Company’s subsidiary bank entered into an agreement with the Office of the Comptroller of the Currency (OCC) relating to the results of its most recent report of examination. The Formal Agreement contains certain required actions and certain restrictions. The agreement requires the subsidiary bank to develop plans, programs, policies, and procedures relating to management and board supervision, long-term strategic goals, loan portfolio, criticized assets, capital, internal audit and internal loan review by certain dates and then to implement and follow those plans, programs, policies and procedures. A review and evaluation of certain groups of loans and correction of deficiencies is also required. Additionally, the formal agreement mandates that the subsidiary bank achieve and maintain a 7.50% Tier 1 leverage ratio and 13.0% Tier 1 capital ratio by March 31, 2005. Under the terms of the formal agreement, the board of directors of the subsidiary bank is responsible for the proper and sound management of the Bank and must appoint a compliance committee from among their independent members, and report monthly to the OCC on the progress in complying with the agreement. The subsidiary bank board has appointed a compliance committee and has filed monthly reports with the OCC.  The Company’s board of directors also adopted a resolution with the Federal Reserve Bank of Cleveland, under authority given it by the Board of Governors of the Federal Reserve System, the federal regulatory agency for the Company. As with the agreement of the OCC, the Federal Reserve resolution necessitates certain actions and restrictions. Without prior Federal Reserve approval and a 30 day prior notice requirement, the resolution prohibits the Company from paying dividends, incurring debt, or participating in the acquisition of treasury stock. In addition, prior written approval is required before engaging in any non-bank activities. To date, the Company has taken, and intends to continue to take, all appropriate steps to comply with the Federal Reserve requirements.    17    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS  The reported fair values of financial instruments are based on a variety of factors. Where possible, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Intangible values assigned to customer relationships are not reflected in the reported fair values. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.  The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:  Cash and Cash Equivalents: The carrying amount for cash and cash equivalents is a reasonable estimate of fair value.  Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.  Loans: Fair values for net loans are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, real estate, and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value is calculated by discounting scheduled cash flows through the estimated maturity using estimated discount rates which reflect credit and interest rate risks inherent to the loan.  Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.  Deposits: The carrying amount for noninterest bearing and interest bearing demand deposits and savings deposits is considered to be a reasonable estimate of fair value. Fair values for time deposits are estimated using discounted cash flow analysis. Discount rates reflect rates currently offered for deposits of similar remaining maturities.  Federal Funds Purchased and Repurchase Agreements: The carrying amount for federal funds purchased and repurchase agreements are considered to be a reasonable estimate of fair value.  Federal Home Loan Bank and other long term borrowings: The fair value of FHLB and other long term borrowings is based on the interest rates currently charged for borrowings with similar terms and maturities.  Accrued Interest Payable: The carrying amount of accrued interest payable approximates it fair value.  Off-Balance-Sheet Instruments: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The amount of fees currently charged on commitments is determined to be insignificant and, therefore, the carrying value and fair value of off-balance-sheet instruments are not shown.  The estimates of fair values of financial instruments are summarized as follows at December 31:                         (Expressed in Thousands)       2005    2004       CarryingAmount     Fair Value    CarryingAmount     Fair Value   Financial assets:                       Cash and cash equivalents    $ 11,749    $ 11,749    $ 8,120    $ 8,120   Investment securities      107,998      108,033      106,561      106,664   Loans      132,894      130,642      151,975      150,896   Accrued interest receivable      1,255      1,255      1,259      1,259         Financial liabilities:                       Deposits      218,817      216,859      236,171      235,564   Federal funds purchased and repurchase agreements      19,084      19,080      15,759      15,759   FHLB and other long term borrowings      3,385      3,385      2,425      2,424   Accrued interest payable      404      404      355      355    18    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS  Presented below are the condensed statements of financial condition, statements of income, and statements of cash flows for First West Virginia Bancorp, Inc.  BALANCE SHEETS                    December 31,       2005     2004  ASSETS             Cash    $ 116,792     $ 79,876   Investment in common stock - Available-for-sale (at market value)      399,308       654,030   Investment in subsidiary Banks      24,520,762       23,372,256   Other assets      106,242       475,319                    Total assets    $ 25,143,104     $ 24,581,481                   LIABILITIES             Accrued expenses    $ (149,001 )   $ 34,390   Deferred compensation      333,476       594,055   Other borrowings      1,000,000       —                      Total liabilities      1,184,475       628,445      STOCKHOLDERS’ EQUITY      23,958,629       23,953,036                    Total liabilities and stockholders’ equity    $ 25,143,104     $ 24,581,481                   STATEMENTS OF INCOME                        Year Ended December 31,         2005    2004     2003    INCOME                   Dividends from subsidiary Banks    $ 2,090,512    $ 1,186,280     $ 1,534,344     Gain (loss) on sale of investments      47,469      (1,708 )     (10,939 )   Other income      117,241      180,100       137,551                               Total income      2,255,222      1,364,672       1,660,956                              EXPENSES                   Salary and employee benefits      69,192      48,994       44,868     Interest expense      69,778      —         —       Other expenses      153,447      142,334       146,923                               Total expenses      292,417      191,328       191,791                               Income before income taxes and equity in undistributed income of subsidiary      1,962,805      1,173,344       1,469,165         INCOME TAX BENEFIT      52,930      974       32,391         EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY      246,530      1,463,007       1,016,685                               Net income    $ 2,262,265    $ 2,637,325     $ 2,518,241                                19    First West Virginia Bancorp, Inc. and Subsidiary  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2005, 2004, AND 2003  NOTE 21 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)  STATEMENTS OF CASH FLOWS                         Year Ended December 31,         2005     2004     2003    OPERATING ACTIVITIES                   Net income    $ 2,262,265     $ 2,637,325     $ 2,518,241     Adjustments to reconcile net income to net cash provided by operating activities:                   Change in deferred tax benefit      109,755       (3,845 )     (5,918 )   Undistributed earnings of affiliate      (246,530 )     (1,463,007 )     (1,016,685 )   Changes in operating assets and liabilities:                   Other assets      257,529       (41,936 )     (167,128 )   Deferred compensation      (260,578 )     (20,388 )     28,003     Other liabilities      (183,391 )     51,552       (15,066 )   Gain (loss) on sale of securities      (47,469 )     1,708       10,939                                Net cash provided by operating activities      1,891,581       1,161,409       1,352,386                               INVESTING ACTIVITIES                   Payments for investments in subsidiary      (2,000,000 )     —         —       Proceeds from sale of securities      406,440       73,046       91,050     Purchase of investment securities      (99,489 )     (106,879 )     (129,183 )                              Net cash used in investing activities      (1,693,049 )     (33,833 )     (38,133 )                             FINANCING ACTIVITIES                   Purchase of treasury stock      —         —         (228,100 )   Proceeds from borrowings      2,000,000       —         —       Repayment of borrowings      (1,000,000 )     —         —       Dividends paid      (1,161,616 )     (1,161,616 )     (1,123,063 )                              Net cash used in financing activities      (161,616 )     (1,161,616 )     (1,351,163 )                             INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      36,916       (34,040 )     (36,910 )       CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      79,876       113,916       150,826                               CASH AND CASH EQUIVALENTS AT END OF YEAR    $ 116,792     $ 79,876     $ 113,916                                Supplemental disclosures:                   Cash paid for interest    $ —       $ —       $ —       Cash paid for income taxes      —         500       —        20    Management’s Responsibility For Financial Statements  The Company’s consolidated financial statements and the related information appearing in this Annual Report were prepared by management in accordance with generally accepted accounting principles and where appropriate reflect management’s best estimates and judgment. The financial statements and the information related to those statements contained in the Annual Report are the responsibility of management.  The accounting systems of the Company include internal accounting controls which safeguard the Company’s assets from material loss or misuse and ensure that transactions are properly authorized and recorded in its financial records, and designed to provide reasonable assurance as to the integrity and reliability of the financial records. There are inherent limitations in all systems of internal control based on the recognition that the cost of such systems should not exceed the benefits to be derived. The accounting system and related controls are reviewed by a program of internal audits performed by the internal auditor and independent auditors.  Our independent auditors are responsible for auditing the Company’s financial statements in accordance with generally accepted auditing standards and to provide an objective, independent review of the fairness of reported operating results and financial position of the Company.  The Company’s internal auditor and independent auditors have direct access to the Audit committee of the Board of Directors. This committee meets periodically with the internal auditor, the independent auditors, and management to ensure the financial accounting and audit process is properly conducted.  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  Board of Directors  First West Virginia Bancorp, Inc.  Wheeling, West Virginia  We have audited the accompanying consolidated balance sheets of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First West Virginia Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of its operations, and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.  S. R. Snodgrass, A.C.  Wheeling, West Virginia  February 18, 2006  S.R. Snodgrass, A.C.  980 National Road Wheeling, WV 26003-6400    Phone: 304-233-5030    Facsimile: 304-233-3062    21    Table One  SELECTED FINANCIAL DATA  (Dollars in thousands, except per share data)                                 December 31,         2005     2004     2003     2002     2001     SUMMARY OF OPERATIONS                             Total interest income    $ 13,128     $ 13,406     $ 13,319     $ 14,309     $ 14,772     Total interest expense      4,070       4,195       4,603       5,101       6,422     Net interest income      9,058       9,211       8,716       9,208       8,350     Provision for loan losses      180       300       435       540       573     Total other income      1,378       1,284       1,346       1,033       942     Total other expenses      7,451       6,747       6,342       6,062       5,324     Income before income taxes      2,804       3,448       3,285       3,639       3,395     Net income      2,262       2,637       2,518       2,674       2,412     PER SHARE DATA                             Net income    $ 1.48     $ 1.73     $ 1.64     $ 1.74     $ 1.57     Cash dividends declared      0.76       0.76       0.73       0.69       0.68     Book value per share      15.68       15.67       15.07       14.60       13.16     AVERAGE BALANCE SHEET SUMMARY                             Total loans, net    $ 144,528     $ 151,562     $ 137,826     $ 131,383     $ 118,224     Investment securities      102,882       110,528       117,758       93,962       73,639     Deposits - interest bearing      200,902       215,937       217,064       200,170       168,820     Stockholders’ equity      24,409       23,092       21,884       20,302       18,902     Total assets      270,500       284,930       277,952       252,543       217,006     BALANCE SHEET                             Investments    $ 107,998     $ 106,561     $ 119,245     $ 108,065     $ 82,202     Loans      135,214       154,331       146,711       136,772       120,944     Other assets      23,001       18,910       18,155       19,517       28,884                                                Total Assets    $ 266,213     $ 279,802     $ 284,111     $ 264,354     $ 232,030                                                Deposits    $ 218,817     $ 236,171     $ 241,947     $ 231,376     $ 203,772     Federal funds purchased and repurchase agreements      19,084       15,759       15,089       9,038       6,538     FHLB borrowings      2,385       2,425       2,464       —         —       Other long-term borrowings      1,000       —         —         —         —       Other liabilities      968       1,494       1,580       1,480       1,471     Stockholders’ equity      23,959       23,953       23,031       22,460       20,249                                                Total Liabilities and Stockholders’ equity    $ 266,213     $ 279,802     $ 284,111     $ 264,354     $ 232,030                                                SELECTED RATIOS                             Return on average assets      0.84 %     0.93 %     0.91 %     1.06 %     1.11 %   Return on average equity      9.27 %     11.42 %     11.51 %     13.17 %     12.76 %   Average equity to average assets      9.02 %     8.10 %     7.87 %     8.04 %     8.71 %   Dividend payout ratio      51.35 %     43.93 %     44.51 %     39.66 %     43.31 %   Loan to Deposit ratio      61.79 %     65.35 %     60.64 %     59.11 %     59.35 %    22    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 action results to differ materially from those contemplated by such statements, including without limitation, the effect of changing economic conditions, changes in interest rates, changes in lending activities, changes in state and federal regulations, and other external factors which may materially impact the Company’s operational and financial performance.  Critical Accounting Policies: The Company’s accounting policies are integral to understanding the results reported. The accounting policies are described in detail in Note 1 of the Consolidated Financial Statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Detailed policies and control procedures have been established and are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.  Other Than Temporary Impairment of Equity Securities: Equity securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.  Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of the Consolidated Financial Statements.  Goodwill and Other Intangible Assets: As discussed in Note 1 of the notes to the Consolidated Financial Statements, the Company must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.  Deferred Tax Assets: The Company uses an estimate of future earnings to support its position that the benefit of the deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. The deferred tax assets are described further in Note 1 of the Consolidated Financial Statements.  OVERVIEW  Following is a discussion and analysis of the significant changes in the financial condition and results of operations of First West Virginia Bancorp, Inc., (the Company), and its subsidiary for the years ended December 31, 2005, 2004 and 2003. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes, thereto.  The Company reported net income of $2,262,265 or $1.48 per share for the year ended December 31, 2005 as compared to $2,637,325 or $1.73 per share for the year ended December 31, 2004. The decline of $375,060 or 14.2% in earnings during 2005 over 2004 was primarily the result of the increase in noninterest expenses combined with the decline in net interest income and were offset in part by the decrease in the provision for loan losses and the increase in noninterest income. Noninterest expenses rose $704,618 or 10.4% in 2005 over 2004 and was primarily due to increased operating expenses, salary and employee benefit costs and occupancy expenses. Operating expenses increased $417,352 or 19.6% in 2005, and was primarily due to the subsidiary bank’s compliance with the Formal Agreement resulting in additional nonrecurring service expenses and directors fees; compliance with the Sarbanes-Oxley Act Section 404 resulting in increased internal audit fees and legal expenses; a loss on the sale of other real estate owned; increased regulatory assessments; and the outsourcing of an investment securities portfolio advisor. Salary and employee benefits increased $204,835 or 5.8% in 2005 over 2004 and was primarily due to the hiring of additional personnel to enhance lending development and operations, increased employee benefit costs and normal annual merit adjustments. Occupancy expenses increased $82,431 or 7.8% in 2005 over 2004 and was primarily due to increased building and maintenance costs and equipment repair and maintenance costs. In 2005, the Company’s subsidiary bank leased office space for its executives which contributed to the increased building maintenance costs. During 2005 as compared to 2004, net interest income decreased $153,774 or 1.7% and was primarily attributable to the reduction in the interest earned on loans and investment securities, and was offset in part by the decline in the interest paid on interest bearing liabilities. The provision for loan losses decreased $120,000 in 2005 over 2004 and was primarily the result of the improvement in the asset quality of the loan portfolio. Noninterest income increased $94,087 or 7.3% and was primarily attributable to the nonrecurring gains on sales of investment securities offset in part by a decline in service charges and other fee income. The return on average assets was .84% as of December 31, 2005 compared to .93% in 2004. The return on average equity was 9.27% at December 31, 2005 compared to 11.42% in 2004. The Board of Directors declared and paid cash dividends of $.76 per share during 2005.  Table One is a five-year summary of Selected Financial Data of the Holding Company. The sections that follow discuss in more detail the information summarized in Table One.    23    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Table Two - Average Balance Sheets and Interest Rate Analysis  The following table presents an average balance sheet, interest earned on interest bearing assets, interest paid on interest bearing liabilities, average interest rates and interest differentials for the years ended December 31, 2005, 2004, and 2003. Average balance sheet information as of December 31, 2005, 2004, and 2003 was compiled using the daily average balance sheet. Loan fees and unearned discounts were included in income for average rate calculation purposes. Average yields on investment securities available for sale have been calculated based on amortized cost. Non - accrual loans were included in the average balance computations; however, no interest was included in income subsequent to the non - accrual status classification.                                       (dollars in thousands)    December 31, 2005     December 31, 2004     December 31, 2003         AverageVolume     Interest    AverageRate     AverageVolume     Interest    AverageRate     AverageVolume     Interest    AverageRate     ASSETS:                                              Investment securities:                                              U.S. Treasury and U. S     Government agencies    $ 45,684     $ 1,492    3.27 %   $ 47,484     $ 1,457    3.07 %   $ 46,358     $ 1,407    3.04 %   Mortgage backed securities      37,239       1,460    3.92 %     39,313       1,346    3.42 %     44,504       1,381    3.10 %   States and political subdivisions      19,050       697    3.66 %     20,005       728    3.64 %     20,259       743    3.67 %   Other securities      909       36    3.96 %     3,726       193    5.18 %     6,637       343    5.17 %                                                                     Total Investment securities:      102,882       3,685    3.58 %     110,528       3,724    3.37 %     117,758       3,874    3.29 %   Interest bearing deposits      881       29    3.29 %     993       11    1.11 %     1,721       16    0.93 %   Federal funds sold      5,646       178    3.15 %     6,041       77    1.27 %     6,913       72    1.04 %   Loans, net of unearned income      144,528       9,208    6.37 %     151,562       9,572    6.32 %     137,826       9,329    6.77 %   Other earning assets      1,257       28    2.23 %     930       22    2.37 %     890       28    3.15 %                                                                     Total earning assets      255,194       13,128    5.14 %     270,054       13,406    4.96 %     265,108       13,319    5.02 %   Cash and due from banks      6,092                6,055                5,822              Bank premises and equipment      4,111                3,876                4,019              Other assets      7,566                7,221                5,110              Allowance for loan losses      (2,463 )              (2,276 )              (2,107 )                                                                  Total Assets    $ 270,500              $ 284,930              $ 277,952                                                                    LIABILITIES                                              Time deposits    $ 83,666     $ 2,750    3.29 %   $ 87,972     $ 2,786    3.17 %   $ 94,156     $ 3,285    3.49 %   Savings deposits      78,648       704    0.90 %     88,786       879    0.99 %     86,322       952    1.10 %   Interest bearing demand deposits      38,588       120    0.31 %     39,179       127    0.32 %     36,586       142    0.39 %   Federal funds purchased and repurchase agreements      13,894       312    2.25 %     16,906       286    1.69 %     12,671       199    1.57 %   FHLB and other long-term borrowings      3,501       184    5.26 %     2,444       117    4.79 %     544       26    4.78 %                                                                     Total interest bearing liabilities      218,297       4,070    1.86 %     235,287       4,195    1.78 %     230,279       4,604    2.00 %   Demand deposits      26,388                24,885                24,157              Other liabilities      1,406                1,666                1,632                                                                    Total Liabilities      246,091                261,838                256,068              STOCKHOLDERS’ EQUITY      24,409                23,092                21,884                                                                    Total Liabilities and Stockholders’ Equity    $ 270,500              $ 284,930              $ 277,952                                                                    Net yield on earning assets         $ 9,058    3.55 %        $ 9,211    3.41 %        $ 8,715    3.29 %                                                              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 2005, 2004, and 2003, respectively. The effect of this adjustment is presented below.           Investment securities    $ 102,882     $ 4,110    3.99 %   $ 110,528     $ 4,165    3.77 %   $ 117,758     $ 4,333    3.68 %   Loans      144,528       9,641    6.67 %     151,562       10,000    6.60 %     137,826       9,720    7.05 %                                                                     Total earning assets    $ 255,194     $ 13,986    5.48 %   $ 270,054     $ 14,275    5.29 %   $ 265,108     $ 14,169    5.34 %                                                                     Taxable equivalent net yield on earning assets         $ 9,916    3.89 %        $ 10,080    3.73 %        $ 9,565    3.61 %                                                             24    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, 2005 and 2004 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)    2005 Compared to 2004     2004 Compared to 2003          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    $ (55 )   $ 90     $ 35     $ 34     $ 16     $ 50                   Mortgage backed securities      (71 )     185       114       (161 )     126       (35 )   Obligations of states and political subdivisions      (35 )     4       (31 )     (9 )     (6 )     (15 )   Other securities      (146 )     (11 )     (157 )     (150 )     —         (150 )                                                      Total investment securities      (307 )     268       (39 )     (286 )     136       (150 )   Interest bearing deposits      (1 )     19       18       (7 )     2       (5 )   Federal funds sold      (5 )     106       101       (9 )     14       5     Loans, net of unearned income      (444 )     80       (364 )     930       (687 )     243     Other earning assets      7       (1 )     6       1       (7 )     (6 )                                                      Total interest earned      (750 )     472       (278 )     629       (542 )     87                                                        INTEREST EXPENSE ON:                                  Time deposits      (136 )     100       (36 )     (216 )     (283 )     (499 )   Savings deposits      (100 )     (75 )     (175 )     27       (100 )     (73 )   Interest bearing demand deposits      (2 )     (5 )     (7 )     10       (25 )     (15 )   Federal funds purchased and repurchase agreements      (51 )     77       26       67       20       87     FHLB and other long-term borrowings      50       17       67       91       —         91                                                        Total interest paid      (239 )     114       (125 )     (21 )     (388 )     (409 )                                                      Net interest differential    $ (511 )   $ 358     $ (153 )   $ 650     $ (154 )   $ 496                                                          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 2005, 2004, and 2003, respectively.           Investment securities    $ (288 )   $ 233     $ (55 )   $ (266 )   $ 98     $ (168 )   Loans      (464 )     105       (359 )     969       (689 )     280                                                        Total interest earned    $ (751 )   $ 462     $ (289 )   $ 688     $ (582 )   $ 106                                                        Net interest differential    $ (512 )   $ 348     $ (164 )   $ 709     $ (194 )   $ 515                                                         25    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  EARNINGS ANALYSIS  Net Interest Income  Net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities, is the primary source of earnings for the Company. Changes in the volume and mix of earning assets and interest bearing liabilities combined with changes in market rates of interest greatly effect net interest income. Tables Two and Three analyze the changes in net interest income for the three years ended December 31, 2005, 2004, and 2003.  Net interest income decreased $153,774 or 1.7% in 2005 from 2004, and follows an increase in 2004 of $495,698 or 5.7% from 2003. The decline in net interest income in 2005 was primarily due to a decrease in the interest earned on loans and investment securities, offset in part by a decrease in the average volume of interest bearing liabilities. The increase in net interest income in 2004 was primarily due to the decline in the interest rates paid on deposits combined with the increase in the interest earned on loans and was partially offset by the decline in the interest earned on investment securities. The changes in the volume and mix of earning assets and interest bearing liabilities combined with the changes in the market rates of interest resulted in taxable equivalent net interest yields on average earning assets of 3.89% for 2005, as compared to 3.73% and 3.61% earned during 2004 and 2003, respectively.  Interest and fees on loans decreased $364,392 or 3.8% from 2004 to 2005, after increasing $243,735 or 2.6% from 2003 to 2004. Interest and fees on loans declined in 2005 as compared to 2004 primarily due to the decline in the average volume of loans which was partially offset by an increase in the yield earned on the loan portfolio. The increase in interest and fees on loans in 2004 was primarily the result of the growth in the average loan volume offset in part by a reduction in the interest rates earned on loans. The taxable equivalent yield on loans increased .07% in 2005, from 6.60% in 2004 to 6.67% in 2005, after falling .45% in 2004, from 7.05% in 2003 to 6.60% in 2004. The average loan volume decreased $7.0 million or 4.6% in 2005 as compared to 2004 after increasing $13.7 million or 10.0% in 2004 as compared to 2003.  Interest income on investment securities during 2005 decreased $39,567 or 1.1% over 2004, and follows a decrease of $150,150 or 3.9% over 2003. The decline in the average volume of investment securities offset in part by the increase in the interest rates earned contributed to the decrease in interest earned on investment securities during 2005 and 2004. The taxable equivalent yield on investment securities rose .22% in 2005, from 3.77% in 2004 to 3.99% in 2005, and .09% in 2004, from 3.68% in 2003 to 3.77% in 2004. The average volume of investment securities decreased $7.6 million or 6.9% in 2005 as compared to 2004, and follows a decrease of $7.2 million or 6.1% in 2004 as compared to 2003.  Interest expense in 2005 decreased $124,088 or 3.0% from 2004, compared to a decrease in 2004 of $408,393 or 8.9% from 2003. In 2005, the decline in the average volume of interest bearing liabilities which was offset in part by the rise in interest rates primarily contributed to the overall decline in interest expense. The decrease in the interest rates paid on interest bearing liabilities primarily contributed to the decline in interest expense in 2004. The average yield paid on interest bearing liabilities during 2005 increased .08%, from 1.78% in 2004 to 1.86% in 2005, and follows a decrease in 2004 of .22%, from 2.00% in 2003 to 1.78% in 2004. The decline in the average volume of deposits and repurchase agreements combined with the decline in the average yield paid on savings deposits offset in part by the increase in the average yield paid on time deposits, repurchase agreements and other borrowings primarily resulted in the reduced interest expense. In 2004, the decline in the average yields paid on time deposits and savings deposits offset in part by the increase in the average volume of repurchase agreements and FHLB borrowings primarily contributed to the reduction in interest expense. The average volume of interest bearing deposits decreased $15.0 million or 7.0% in 2005 compared to 2004, after decreasing $1.1 million or .5% in 2004 as compared to 2003. The decrease in the average volume of interest bearing deposits during 2005 was primarily the result of the decline in time and savings deposits. In 2004 the decrease in the average volume of interest bearing deposits was primarily due to the decline in time deposits.  Noninterest Income  Noninterest income is comprised of service charges, investment securities gains and losses, and other operating income. Noninterest income increased $94,087 or 7.3%, in 2005 as compared to an decrease of $62,496 or 4.6% in 2004. During 2005, noninterest income primarily increased due to the nonrecurring gains on sales of investment securities offset in part by a decline in service charges and other fee income. The decrease in noninterest income in 2004 was primarily due to the nonrecurring gains recognized in 2003 on the sale of investment securities.  Sales of investment securities by the subsidiary bank are generally limited to the needs established under the liquidity policies. During 2005, the Company and its subsidiary bank accounted for securities gains of $144,770 and securities losses of $26,337 which were attributable to sales of securities available for sale. In 2004, the Company and its subsidiary bank accounted for securities gains of $14,277 and securities losses of $9,512 which were attributable to sales of securities available for sale. During 2003, securities gains of $253,288 and securities losses of $39,570 which were sales of securities available for sale were recorded by the Company and its subsidiary bank.  Other operating income represents fees from safe deposit box rentals, sales of checkbooks, sales of cashiers’ checks and money orders, utility collections, ATM charges and card fees, home equity credit line fees, credit life commissions, credit card fees and commissions, income earned on bank owned life insurance and various other charges and fees related to normal customer banking relationships. In 2005, other operating income was $483,682, an increase of $4,424 or .9% over 2004, and follows an increase of $103,152, or 27.4%, over 2003. The increase in other operating income resulted primarily from the earnings related to the cash surrender value of the bank owned life insurance on its key officers and ATM fees, offset in part by the nonrecurring gains on sales of assets and a decrease in income related to the sales of checkbooks and other credit card fees. During 2004, earnings on bank owned life insurance policies amounted to $80,700 combined with gains on sales of assets primarily contributed to the increase in other operating income during 2004.  Service charges and other fees represent the major component of noninterest income. These charges are earned from assessments made on checking and savings accounts. Service charges decreased $24,005 in 2005, down 3.0%, from 2004, as compared to an increase of 5.7% from 2003 to 2004. The decrease in service charges primarily resulted from a decline in the service charge fees and overdraft fees assessed on deposit accounts as compared to the prior year. The increases in service charges in 2004 was primarily due to the increase in the number of charges assessed on deposit accounts.    26    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Noninterest Expense  Noninterest expense increased $704,618 or 10.4% as compared to same period of the prior year. The increase in noninterest expense was primarily due to increases in other operating expenses, salary and employee benefits, and net occupancy expense.  The major components of other operating expenses include: stationery and supplies, directors’ fees, service expense, postage and transportation, other taxes, advertising, and regulatory assessments and deposit insurance. Other operating expense increased $417,352, or 19.6%, compared to the same period of the prior year and was attributable primarily to the subsidiary bank’s compliance with the Formal Agreement resulting in increased service expenses and directors fees; compliance with the Sarbanes-Oxley Act Section 404 which resulted in increased internal audit fees and legal expenses; a loss on the sale of other real estate owned which amounted to $59,032; increased regulatory assessments; and the outsourcing of investment securities portfolio management, offset in part by decreased advertising expense and other taxes. Other operating expenses increased $115,149 or 5.7% in 2004 over 2003. During 2004, the increase in other operating expenses was primarily due to the increase in directors’ fees, advertising, service expenses, and other expenses, offset by the decrease in regulatory assessments, stationery and supplies expense, and other taxes.  Salary and employee benefits represent the largest component of noninterest expense. Salary and employee benefits increased $204,835 or 5.8% in 2005 over 2004. During 2004, salary and employee benefits increased $207,199 or 6.2% as compared to the same period in 2003. The increased salary and employee benefit expense in 2005 compared to 2004 was primarily due to the hiring of additional personnel to enhance lending development and operations, increased employee benefit costs and normal annual merit adjustments. The increase in salary and employee benefits in 2004 was primarily due to the hiring of additional personnel at the subsidiary bank’s branch offices and normal annual merit adjustments.  Occupancy expenses increased $82,431 or 7.8% in 2005 over 2004, and follows a increase of $82,716 or 8.5% in 2004 over 2003. Increased building and maintenance costs and equipment repair and maintenance costs primarily contributed to the increase in occupancy expenses in 2005 as compared to 2004. In January 2005 the Company’s subsidiary bank leased office space for its executives in Wheeling, WV which contributed to the increased building and maintenance costs as compared to the prior year. The increase in occupancy expenses from 2003 to 2004 was primarily due to increased building maintenance costs, insurance and equipment repair and maintenance costs. The Company incurred additional maintenance costs with the operation of the internet web site and online banking program in 2004.  Income Taxes  Income tax expense for the period ended December 31, 2005 was $541,769, a decrease of $269,245 or 33.2% over 2004 as compared to the increase of $44,054 or 5.7% from 2003 to 2004. The decrease in pre-taxable income primarily contributed to the reduction in income tax expense in 2005. The increase in pre-taxable income offset in part by the increase in tax exempt income primarily contributed to the increase in income tax expense in 2004.  For federal income tax purposes, tax-exempt income is based on qualified state, county, and municipal bonds and loans. Tax-exempt income was $1,287,153 in 2005; $1,301,770 in 2004; and $1,275,770 in 2003. 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 $1,271,000 in 2005; $1,602,000 in 2004; and $1,606,000 in 2003.  Components of the income tax expense for December 31, 2005 were $424,359 for federal taxes and $117,410 for West Virginia corporate net income taxes. Federal income tax rates and West Virginia corporate net income tax rates were consistent at 34% and 9%, respectively, for the years ended December 31, 2005, 2004 and 2003. Additional information regarding income taxes is contained in Note 7 to the Consolidated financial statements.  BALANCE SHEET ANALYSIS  Investments  Investment securities increased $1,437,381 or 1.4% from 2004, and followed a decrease in 2004 of $12,683,986 or 10.6% from 2003. 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. Treasury securities, U.S. Government agency and corporation securities, obligations of states and political subdivisions, corporate debt securities, mortgage-backed securities and equity securities. Taxable securities comprised 79.6% of total securities at December 31, 2005, as compared to 82.3% at December 31, 2004. Other than the normal risks inherent in purchasing U.S. Treasury securities, U.S. Government agency and corporation securities, and obligations of states and political subdivisions, i.e., interest rate risk, management has no knowledge of other market or credit risk involved in these investments. The Company does not have any high risk hybrid/derivative instruments.  Investment securities that are classified available for sale are available for sale at any time based upon management’s assessment of changes in economic or financial market conditions. These securities are carried at fair value and the unrealized holding gains and losses, net of taxes, are reflected as a separate component of stockholders’ equity until realized. Available for sale securities, at fair value increased $2,485,665 or 2.4% from 2004, and represented 98% of the investment portfolio at December 31, 2005. The increase in the available for sale securities was primarily due to the purchase of mortgage-backed securities and obligations of states and political subdivisions, offset in part by the maturities and calls of the U.S. Treasury and other U.S. government agency and corporation securities, corporate debt securities and equity securities. Investment securities held to maturity are securities purchased with the intent and ability to hold until their maturity. Securities classified as held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts. The held to maturity securities decreased $1,048,284 or 37.1% from 2004 and represented 2% of the investment portfolio as of December 31, 2005. The decrease in the held to maturity securities was primarily the result of maturities and calls of tax exempt municipal securities. As the investment portfolio consists primarily of fixed rate debt securities, changes in the market rates of interest will affect the carrying value of securities available for sale, adjusted upward or downward under the requirements of FAS 115 and represent temporary adjustments in value. The carrying values of securities available for sale were decreased by $1,645,259 and increased by $110,482 at December 31, 2005 and 2004, respectively. The fair value of securities classified as held to maturity was above book value by $34,539 and by $102,751 at December 31, 2005 and 2004, respectively.    27    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Investments - Continued  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, 2005 and December 31, 2004 are presented in the following table. Tax equivalent yield basis was used on tax exempt obligations. Approximate yield was calculated using a weighted average of yield to maturities.                                 (dollars in thousands)    December 31, 2005     December 31, 2004          Securities Held to Maturity     SecuritiesAvailable for Sale      Securities Held to Maturity     SecuritiesAvailable for Sale         Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     U. S. Treasury and other U.S. Government Agencies                                        Within One Year    $  —      —   %   $ 8,722    2.65 %   $  —      —   %   $ 11,058    2.24 %   After One But Within Five Years      —      —         30,659    3.91       —      —         27,141    3.22     After Five But Within Ten Years      —      —         1,017    4.43       —      —         5,163    4.27     After Ten Years      —      —         192    4.39       —      —         228    2.39                                                                 —      —         40,590    3.65       —      —         43,590    3.09               States & Political Subdivisions                                        Within One Year      645    5.74       1,272    5.46       1,049    5.96       536    4.29     After One But Within Five Years      1,034    6.91       5,339    4.71       1,679    6.46       6,597    4.42     After Five But Within Ten Years      97    7.95       6,742    5.21       97    7.95       8,009    5.14     After Ten Years      —      —         6,635    6.09       —      —         2,121    6.06                                                                 1,776    6.54       19,988    5.38       2,825    6.33       17,263    4.95               Corporate Debt Securities                                        Within One Year      —      —         —      —         —      —         1,811    6.29     After One But Within Five Years      —      —         —      —         —      —         1,037    5.76                                                                 —      —         —      —         —      —         2,848    6.10               Mortgage-Backed Securities      —      —         45,254    4.70       —            39,390    3.95     Equity Securities      —      —         390    2.57       —      —         645    2.13                                                            Total    $ 1,776    6.54 %   $ 106,222    4.42 %   $ 2,825    6.33 %   $ 103,736    3.80 %                                                           28    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Loans  Loans represent the largest asset on the Company’s balance sheet. Total loans, net of unearned income, decreased $19,116,779 or 12.4% from 2004 to 2005. Total loans declined in 2005 primarily due to decreases in commercial loans, residential real estate loans, installment loans and other loans which decreased approximately $9,483,000, $6,652,000, $1,676,000 and $1,322,000, respectively. The Company’s subsidiary bank experienced an unusual decline in loan volume during 2005. This was primarily due to large paydowns and payoffs to competitors. Part of the reduction in loan volume was initiated to improve the asset quality of the loan portfolio. Other loans were participated to other financial institutions in order to restructure the bank’s balance sheet to achieve the minimum capital ratios set forth in the Formal Agreement. From 2003 to 2004, total loans increased $7,620,543 or 5.2%. The loan growth in 2004 was primarily due to an increase of $6,639,000 in commercial loans and $2,709,000 in other loans, offset in part by decreases of $1,121,000 in real estate loans and $563,000 in installment loans.  Real estate residential loans which include real estate construction, real estate farmland, real estate residential loans and multi-family residential properties comprised thirty-three percent (33%) of the loan portfolio. Commercial loans which include real estate secured by non-farm, non-residential properties and commercial and industrial loans comprised forty-five percent (45%) of the loan portfolio. Installment loans comprised twelve percent (12%) of the loan portfolio. Other loans which include non-rated industrial development obligations, direct financing leases and other loans comprised ten percent (10%) of the loan portfolio. The changes in the composition of the loan portfolio from 2004 to 2005 were a 1% increase in other loans and a 1% decrease in real estate residential loans. From 2003 to 2004, the changes in the composition of the loan portfolio were a 2% increase in commercial loans, a 1% increase in other loans, a 2% decrease in real estate residential loans and a 1% decrease in installment loans.  Table Five  Loan Portfolio - Maturities and sensitivities of Loans to Changes in Interest Rates  (dollars in thousands)  The following table presents the contractual maturities of loans other than installment loans and residential mortgages as of December 31, 2005 and 2004:                               December 31, 2005    December 31, 2004        In one Year or Less    After oneYearThroughFive Years    AfterFive Years    In oneYear or Less    After oneYearThroughFive Years    AfterFive Years   Real estate construction    $ 31    $ 369    $ 359    $ 515    $ 752    $ 574   Commercial real estate - secured by nonfarm, nonresidential property      1,273      1,966      43,348      1,544      2,263      47,892   Commercial and industrial      559      7,205      5,957      1,310      7,866      8,916   Nonrated industrial development obligations      402      3,027      9,784      1,585      3,638      9,315                                               Total    $ 2,265    $ 12,567    $ 59,448    $ 4,954    $ 14,519    $ 66,697                                                 The following table presents an analysis of fixed and variable rate loans as of December 31, 2005 and 2004 along with the contractual maturities of loans other than installment loans and residential mortgages:         December 31, 2005    December 31, 2004        In one Year or Less    After oneYearThroughFive Years     After Five Years     In one Year or Less    After oneYearThroughFive Years     After Five Years   Fixed Rates    $ 747    $ 7,805    $ 9,156    $ 2,951    $ 9,378    $ 12,817   Variable Rates      1,518      4,762      50,292      2,003      5,141      53,880                                               Total    $ 2,265    $ 12,567    $ 59,448    $ 4,954    $ 14,519    $ 66,697                                                29    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Loans - Continued  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 $1,510,000 at December 31, 2005 as compared to $1,642,000 at December 31, 2004. Non-performing loans decreased $132,000 in 2005, after decreasing $527,000 in 2004. Declines in both other real estate owned and non-accrual loans, offset by the increase in loans past due 90 days or more, primarily contributed to the overall reduction in non-performing loans in 2005.  Loans are placed in non-accrual when the principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection. Non-accrual loans were $1,367,000 or 1.0% of total loans outstanding as of December 31, 2005, as compared to $1,441,000 or .9% of total loans at December 31, 2004. Loans past due 90 days or more and still accruing interest were $90,000 at December 31, 2005, as compared to $17,000 at December 31, 2004. Other real estate owned amounted to $53,000 at December 31, 2005 compared to $184,000 at December 31, 2004. At December 31, 2005 other real estate owned consists of residential real estate. Other real estate owned decreased $131,000 in 2005 over 2004, and follows an increase of $172,000 in 2004 over 2003. The increase in 2004 was primarily due to the addition of a commercial property by the subsidiary bank. Management continues to monitor the nonperforming assets to ensure against deterioration in collateral values.  Table Six - Risk Elements  Loans which are in the process of collection, but are contractually past due 90 days or more as to interest or principal, renegotiated, non-accrual loans and other real estate are as follows:                            (dollars in thousands)    December 31,         2005     2004     2003     2002     2001     Past Due 90 Days or More:                            Real Estate - residential    $ 85     —       $ 52     $ 61     $ 21     Commercial      —       6       —         —         26     Installment      5     11       6       15       26                                                   90     17     $ 58     $ 76     $ 73                                              Non-accrual:                            Real Estate - residential    $ 64     74     $ 12     $ 115     $ 27     Commercial      1,262     1,357       2,052       1,443       1,124     Installment      41     10       35       9       33                                                 $ 1,367     1,441     $ 2,099     $ 1,567     $ 1,184                                              Other Real Estate    $ 53     184     $ 12     $ 39     $ 60                                              Total non-performing assets    $ 1,510     1,642     $ 2,169     $ 1,682     $ 1,317                                              Total non-performing assets to total loans and other real estate      1.12 %   1.06 %     1.48 %     1.23 %     1.09 %  Generally, all banks recognize interest income on the accrual basis, except for certain loans which are placed on a non - accrual status. Loans are placed on a non - accrual status, when in the opinion of management doubt exists as to its collectibility. In accordance with the Office of the Comptroller of the Currency Policy, banks may not accrue interest on any loan which either the principal or interest is past due 90 days or more unless the loan is both well secured and in the process of collection. The amount of interest income that would have been recognized on nonaccrual loans had the loans performed in accordance with their original terms was $117,900 and $105,700 for the periods ended December 31, 2005 and 2004, respectively.    30    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Allowance for Loan Losses  In all lending activities there is an inherent risk that borrowers will be unable to repay their obligations. The Company maintains an allowance for loan losses to absorb probable loan losses. Table Seven presents a five-year summary of the Allowance for Loan Losses. The Company has historically maintained the allowance for loan losses at a level greater than actual charge-offs. Although a subjective evaluation is determined by management, the Company believes it has appropriately assessed the risk of loans in the loan portfolio and has provided for an allowance which is adequate based on that assessment. Because the allowance is an estimate, any change in the economic conditions of the Company’s market area could result in new estimates which could affect the Company’s earnings. Management monitors the quality of the loan portfolio through reviews of past due loans and all significant loans which are considered to be potential problem loans on a monthly basis. The internal loan review function provides for an independent review of commercial, real estate, and installment loans in order to measure the asset quality of the portfolio. Management’s review of the loan portfolio has not indicated any material loans, not disclosed in the accompanying tables and discussions which are known to have possible credit problems that cause management to have serious doubts as to the ability of each borrower to comply with their present loan repayment terms.  The allowance for loan losses decreased $36,230 or 1.5%, between December 31, 2005 and December 31, 2004. The allowance for loan losses represented 1.7% and 1.5% of outstanding loans as of December 31, 2005 and 2004, respectively. Net loan charge-offs were $216,230 in 2005, compared to $248,767 in 2004 and $157,037 in 2003. The net loan charge-offs remain within historical ranges. The net loan charge-offs in 2005, 2004 and 2003 were primarily commercial and consumer loans. The provision for loan losses was $180,000 for the year ended December 31, 2005, compared to $300,000, and $435,000 at December 31, 2004 and 2003, respectively. 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.  Table Seven - Analysis of Allowance for Possible Loan Losses  The following table presents a summary of loans charged off and recoveries of loans previously charged off by type of loan.                             (dollars in thousands)    December 31,         2005     2004     2003     2002     2001     Allowance for loan losses:                             Balance at beginning of period:    $ 2,356     $ 2,305     $ 2,027     $ 1,646     $ 1,302            Loans Charged Off:                             Real Estate - residential      12       3       13       2       —       Commercial      183       229       77       134       95     Installment      71       70       76       63       164                                                     266       302       166       199       259     Recoveries:                             Real Estate - residential      —         17       3       —         4     Commercial      29       20       —         29       12     Installment      21       16       6       11       14                                                     50       53       9       40       30            Net Charge - offs      216       249       157       159       229            Additions Charged to Operations      180       300       435       540       573                                                Balance at end of period:    $ 2,320     $ 2,356     $ 2,305     $ 2,027     $ 1,646                                                Average Loans Outstanding    $ 144,528     $ 151,562     $ 137,826     $ 131,383     $ 118,224                                                Ratio of net charge-offs to Average loans outstanding for the period      0.15 %     0.16 %     0.11 %     0.12 %     0.19 %          Ratio of the Allowance for Loan Losses to Loans Outstanding for the period      1.72 %     1.53 %     1.57 %     1.48 %     1.36 %  The additions to the allowance for loan losses are based on management’s evaluation of characteristics of the loan portfolio, current and anticipated economic conditions, past loan experiences, net loans charged - off, specific problem loans and delinquencies, and other factors. The Company has allocated the allowance for possible loan losses to specific portfolio segments based upon historical net charge-off experience, changes in the level of nonperforming assets, local economic conditions and management’s experience as presented in Table Eight.    31    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, 2005. The allocation presented below is based on the historical average of net charge offs per category combined with the change in loan growth and management’s review of the loan portfolio.                                       (dollars in thousands)    December 31,         2005     2004     2003     2002     2001         Amount    Percentof loansin eachcategoryto totalloans     Amount    Percentof loansin eachcategoryto totalloans     Amount    Percentof loansin eachcategoryto totalloans     Amount    Percentof loansin eachcategoryto totalloans     Amount    Percentof loansin eachcategoryto totalloans     Real estate - residential    $ 327    33.4 %   $ 325    33.5 %   $ 311    36.0 %   $ 276    37.5 %   $ 263    37.3 %   Commercial      1,465    44.5 %     1,520    45.2 %     1,429    43.0 %     1,161    41.7 %     821    40.0 %   Installment      507    12.3 %     490    11.9 %     544    12.9 %     569    12.9 %     541    16.1 %   Others      21    9.8 %     21    9.4 %     21    8.1 %     21    7.9 %     21    6.6 %                                                                       Total    $ 2,320    100.0 %   $ 2,356    100.0 %   $ 2,305    100.0 %   $ 2,027    100.0 %   $ 1,646    100.0 %                                                                      Deposits  A stable core deposit base is the major source of funds for the Holding Company’s subsidiary bank. The deposit mix depends upon many factors including competition from other financial institutions, depositor interest in certain types of deposits, changes in the interest rate and the Company’s need for certain types of deposit growth. Total deposits decreased approximately $17.4 million or 7.4% in 2005. The decrease in total deposits was primarily due to the decline in savings deposits. Savings deposits decreased approximately $16.6 million, or 19.1%, during 2005 as a result of deposit customers seeking higher yielding deposit products. Also, the Company’s subsidiary bank implemented a designed deposit runoff strategy in order to achieve the minimum capital ratios set forth in the Formal Agreement which contributed to the decline in deposits.  At December 31, 2005, noninterest bearing deposits comprised 12% of total deposits and interest bearing deposits which include NOW, money market, savings and time deposits comprised 88% of total deposits. The change in the deposit mix from December 31, 2004 to December 31, 2005 was a 1% increase in noninterest bearing deposits and a 1% decrease 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, 2005 and 2004. Repurchase agreements increased $3,325,124 or 21.1%, from $15,759,200 at December 31, 2004 to $19,084,324 at December 31, 2005. The 2005 increase in repurchase agreements was primarily due to the addition of commercial customers.  Federal Home Loan Bank and Other Long-term Borrowings  Federal Home Loan Bank (“FHLB”) borrowings were $2,384,893 and $2,425,111 at December 31, 2005 and 2004, respectively, with an interest rate of 4.76%. The FHLB borrowings are collateralized by a blanket collateral agreement which assigns a security interest in capital stock, deposits, mortgage loans, securities and FHLB stock of the subsidiary bank. The borrowings will mature in 2018. The FHLB funding was utilized to mitigate the impact of rising interest rates for a long term fixed rate loan commitment.  During the second quarter of 2005, the Company obtained a $3 million non-revolving line of credit from a financial institution to provide for the capitalization of the subsidiary Bank as required under the terms of the Formal Agreement. The line of credit is secured by 126,200 shares of Progressive Bank, N.A. stock. The note bears an interest rate of prime and is adjusted on a quarterly basis. The line of credit expires in May 2015 and is to be repaid in quarterly interest only payments for the first three years and quarterly principal and interest payments thereafter. The Company’s initial borrowing on the note amounted to $2 million. At December 31, 2005 the outstanding borrowings amounted to $1,000,000 with an interest rate of 7.25%.    32    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Table Nine Contractual Maturities of Long term Obligations and Operating Leases  The following table presents the contractual maturities of long term obligations and operating leases:                        (dollars in thousands)    Payments due by period       < 1 year    1-3 years    3-5 years    > 5 years    Total   Contractual Obligations:                            Federal Home Loan Bank and other long term borrowings    $ 42    $ 91    $ 100    $ 3,152    $ 3,385   Operating Leases      197      176      129      130      632                                           $ 239    $ 267    $ 229    $ 3,282    $ 4,017                                       Table Ten Contractual Maturities of Commitments and Contingencies  The following table presents the maturities of commitments and contingencies:                        (dollars in thousands)    Amount of Commitment Expiration Per Period       < 1 year    1-3 years    3-5 years    > 5 years    Total   Off-Balance Sheet arrangements:                            Commitments to extend credit    $ 1,214    $ 3,262    $ 500    $ 9,226    $ 14,202   Standby letters of credit      369      —        100      70      539                                           $ 1,583    $ 3,262    $ 600    $ 9,296    $ 14,741                                       Capital Resources  Stockholders’ equity increased 4.6% in 2005 entirely from current year earnings after quarterly dividends, and a 4.6% decrease in accumulated other comprehensive income. The decrease in accumulated other comprehensive income is primarily attributable to the effect of the change in the net unrealized losses on available for sale investment securities. The increase in stockholders’ equity in 2005 follows an increase of 6.4% in 2004 entirely from current earnings after quarterly dividends, and an decrease of 2.4% resulting from the effect of the change in the net unrealized gain on available for sale investment securities. Stockholders’ equity amounted to 9.0% and 8.6% of total assets at the end of 2005 and 2004, respectively. The Company paid dividends of $.76 per share in 2005 and 2004.  The Holding Company’s primary source of funds for payment of dividends to shareholders is from the dividends from its subsidiary bank. As previously discussed in Note 18 of the Consolidated Financial Statements, the subsidiary bank entered into an agreement with the Office of the Comptroller of the Currency. Under the terms of the Formal Agreement, the subsidiary bank cannot declare a dividend in 2006 without approval of the Comptroller of the Currency. The Board of Directors also adopted a resolution with the Federal Reserve Bank of Cleveland which prohibits the Company from paying dividends or participating in the acquisition of treasury stock without prior Federal Reserve approval and a 30 day prior notice requirement. The Company has taken, and intends to continue to take, all appropriate steps to comply with the Federal Reserve requirements.  The Holding Company and its subsidiary bank are subject to regulatory risk-based capital guidelines administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. These risk-based capital guidelines establish minimum capital ratios of Total capital, Tier 1 Capital, and Leverage to assess the capital adequacy of bank holding companies. Additional information on capital amounts, ratios and minimum regulatory requirements for the Company and its subsidiary bank can be found in Note 19 of the Consolidated Financial Statements.  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 $106,222,137 classified as available for sale at December 31, 2005. These securities are available for sale at any time based upon management’s assessment in order to provide necessary liquidity should the need arise. In addition, the Company’s subsidiary bank, Progressive Bank, N.A., is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”). Membership in the FHLB provides an additional source of funding in the form of collateralized advances. At December 31, 2005, the subsidiary bank had a short term line of credit in the aggregate amount of approximately $7 million available with the FHLB. There were no short term borrowings outstanding pursuant to this agreement as of December 31, 2005. At December 31, 2005 and December 31, 2004, the Company had outstanding loan commitments and unused lines of credit totaling $14,741,000 and $20,581,000, respectively. As of December 31, 2005, management placed a high probability for required funding within one year of approximately $8.6 million. Approximately $3.6 million is principally unused home equity and credit card lines on which management places a low probability for required funding.  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.    33    Management’s Discussion and Analysis of the Financial Condition and Results of Holding Company Operations  Interest Rate Risk - Continued  This information is used to manage a Company’s asset and liability positions. Management uses this information as a factor in decisions made about maturities of investment of cash flows, classification of investment securities purchases as available-for-sale or held-to-maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to alter asset and liability repricing characteristics. The overall objective is to minimize the impact to the margin of any significant change in interest rates.  The information presented in the following Interest Rate Risk table contains assumptions and estimates used by management in determining repricing characteristics and maturity distributions. As noted in the following table, the cumulative gap at one year is negative at approximately $27,030,000, which indicates the Company’s interest bearing liabilities reprice sooner than earning assets at December 31, 2005. 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, 2005 was as follows: given a 200 basis point increase scenario net interest income would be reduced by approximately 6.5%, and given a 200 basis point decrease scenario net interest income would be reduced by approximately 1.4%. The Asset Liability committee believes that a 200 basis point decline in interest rates is unlikely to occur, and have determined that a 100 basis point instantaneous change may be more realistic. Therefore, the results using a +/-100 basis point interest rate scenario are presented. Under the 100 basis point increase scenario net interest income would be reduced by approximately 3.1%, and given a 100 basis point decrease scenario net interest income would be increased by approximately 1.9%. The projections provided by the model are not intended as an actual forecast of the bank’s performance in a particular rate environment, and should not be relied upon. Actual changes in the interest rate environment normally do not take place instantaneously, but over a period of time, and do not occur in a parallel fashion. Additionally, the balance sheet composition, spread relationships for new dollars invested, non interest income and expenses, investment practices, and deposit practices all change as a result of changes in interest rates and would need to be considered by the Asset Liability committee.  Interest Rate Risk Table - December 31, 2005  (dollars in thousands)                                     Less thanThreeMonths     Four toTwelveMonths     One toThreeYears     Greaterthan ThreeYears     Non-InterestBearing     Total     ASSETS:                                  Cash and cash equivalents    $ 5,819     $ —       $ —       $ —       $ 5,930     $ 11,749     Investment securities      4,820       18,552       35,772       50,562       (1,708 )     107,998     Loans      20,423       27,929       51,617       34,082       1,163       135,214     Other assets      3,194       —         —         —         10,378       13,572     Allowance for loan losses      —         —         —         —         (2,320 )     (2,320 )                                                      Total assets    $ 34,256     $ 46,481     $ 87,389     $ 84,644     $ 13,443     $ 266,213                                                        LIABILITIES AND CAPITAL                                  NOW and savings accounts    $ 15,399     $ 6,384     $ 7,506     $ 58,932     $ —       $ 88,221     Money Market Accounts (MMDA’s)      18,958       —         —         —         —         18,958     Certificates of deposit < $100,000      13,127       21,259       19,545       9,307       —         63,238     Certificates of deposit > $100,000      2,967       9,547       4,779       5,062       —         22,355     Noninterest bearing demand deposits      —         —         —         —         26,045       26,045     Federal funds purchased and repurchase agreements      19,084       —         —         —         —         19,084     FHLB borrowings      10       32       90       2,253       —         2,385     Other long-term borrowings      1,000       —         —         —         —         1,000     Other liabilities      —         —         —         —         968       968     Stockholders’ equity      —         —         —         —         23,959       23,959                                                        Total liabilities and capital    $ 70,545     $ 37,222     $ 31,920     $ 75,554     $ 50,972     $ 266,213                                                        GAP      (36,289 )     9,259       55,469       9,090       (37,529 )                GAP/ Total Assets      (13.63 )%     3.48 %     20.84 %     3.41 %     (14.10 )%                Cumulative GAP      (36,289 )     (27,030 )     28,439       37,529       0                  Cumulative GAP/Total Assets      (13.63 )%     (10.15 )%     10.68 %     14.10 %     0.00 %       The above analysis contains repricing and maturity assumptions and estimates used by management.    34    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 has been traded on the American Stock Exchange primary list since June 20, 1995, and began trading under the symbol of FWV. The following table sets forth the high and low sales prices of the common stock during the respective quarters.                         FirstQuarter    SecondQuarter    ThirdQuarter    FourthQuarter   2005                       High    $ 23.90    $ 21.40    $ 20.07    $ 19.35   Low    $ 20.81    $ 19.51    $ 18.10    $ 17.40         2004                       High    $ 24.85    $ 24.15    $ 23.40    $ 25.05   Low    $ 22.63    $ 22.00    $ 21.60    $ 21.65  Summarized Quarterly Financial Information  A summary of selected quarterly financial information follows:                        2005    FirstQuarter     SecondQuarter    ThirdQuarter     FourthQuarter     Total interest income    $ 3,305,715     $ 3,271,283    $ 3,246,463     $ 3,304,796     Total interest expense      987,271       1,009,855      1,008,387       1,064,988     Net interest income      2,318,444       2,261,428      2,238,076       2,239,808     Provision for loan losses      90,000       90,000      —         —       Investment securities gain (loss)      77,856       2,390      38,309       (122 )   Total other income      295,072       303,896      336,568       323,734     Total other expenses      1,930,503       1,857,371      1,823,928       1,839,623     Income before income taxes      670,869       620,343      789,025       723,797     Net income      545,728       510,783      613,555       592,199     Net income per share      0.36       0.33      0.40       0.39           2004    FirstQuarter     SecondQuarter    ThirdQuarter     FourthQuarter     Total interest income    $ 3,312,275     $ 3,264,003    $ 3,428,544     $ 3,401,297     Total interest expense      1,065,824       1,039,123      1,048,859       1,040,783     Net interest income      2,246,451       2,224,880      2,379,685       2,360,514     Provision for loan losses      30,000       90,000      90,000       90,000     Investment securities gain (loss)      (2,501 )     6,427      (880 )     1,719     Total other income      289,355       301,170      336,408       351,918     Total other expenses      1,624,134       1,628,201      1,707,810       1,786,662     Income before income taxes      879,171       814,276      917,403       837,489     Net income      658,740       625,579      707,973       645,033     Net income per share      0.43       0.41      0.46       0.43           2003    FirstQuarter     SecondQuarter    ThirdQuarter     FourthQuarter     Total interest income    $ 3,396,307     $ 3,331,171    $ 3,312,373     $ 3,278,963     Total interest expense      1,204,535       1,170,228      1,126,618       1,101,601     Net interest income      2,191,772       2,160,943      2,185,755       2,177,362     Provision for loan losses      90,000       75,000      45,000       225,000     Investment securities gain      —         105,200      8       108,510     Total other income      265,118       264,732      311,285       291,259     Total other expenses      1,549,416       1,531,582      1,659,473       1,601,272     Income before income taxes      817,474       924,293      792,575       750,859     Net income      619,471       690,729      608,923       599,118     Net income per share      0.40       0.45      0.40       0.39      35    First West Virginia Bancorp, Inc.  DIRECTORS          Nada E. Beneke    Registered Sanitarian, President, Beneke Corporation     Sylvan J. Dlesk     Chairman, Interim President and Chief Executive Officer, First West Virginia Bancorp, Inc., Interim President and Chief Executive Officer, Progressive Bank, N.A., Owner, Dlesk Realty and Investments, President, Dlesk, Inc., President, Ohio Valley Carpeting, Inc.     Gary W. Glessner    Certified Public Accountant, President/Owner, Glessner & Associates, PLLC     Laura G. Inman    Vice Chairman of the Board, First West Virginia Bancorp, Inc.     James C. Inman, Jr.    Retired Bank Executive     R. Clark Morton    Chairman of the Board, Progressive Bank, N.A., Attorney at Law     Thomas A. Noice    Retired Bank Executive, Treasurer, Belmont Community Hospital     William G. Petroplus    Attorney at Law, Member/Partner Petroplus & Gaudino     Thomas L. Sable    Owner, Bellaire Hardware; Managing Partner, The Summit Atlantic Group, LLC    OFFICERS     Sylvan J. Dlesk    Chairman, Interim President and Chief Executive Officer     Laura G. Inman    Vice Chairman     Francie P. Reppy    Executive Vice President, Chief Administrative Officer, Chief Financial Officer, Treasurer     Nancy J. Ritter    Vice President     Connie R. Tenney    Vice President     Stephanie A. LaFlam    Secretary     Nada E. Beneke    Assistant Secretary  Progressive Bank, N.A.           DIRECTORS     OFFICERS   Nada E. Beneke       Dr. Clyde D. Campbell     R. Clark Morton, Chairman of the Board   Robert R. Cicogna     Sylvan J. Dlesk, Interim President/Chief Executive Officer   Sylvan J. Dlesk     Francie P. Reppy, Executive Vice President/Chief Administrative Officer/Chief Financial Officer   William L. Fury     Nancy J. Ritter, Senior Vice President Operations/Cashier   Gary W. Glessner    Connie R. Tenney, Senior Vice President   Elizabeth H. Hestick    Brad D. Winwood, Senior Vice President/Senior Accounting & Investment Officer   Robert B. Hunnell, Jr.    Michael J. Taylor, Vice President/Credit Administration   J. Burton Hunter, III    Gary S. Martin, Vice President/Retail Lending   James C. Inman, Jr.    David E. Wharton, Vice President/Information Technology Officer/Data Security Officer   Laura G. Inman    Deborah A. Kloeppner, Vice President/Compliance and CRA Officer   Tulane B. Mensore    Michele L. Stanley, Vice President/Bank Secrecy & OFAC Officer   R. Clark Morton    Susan E. Reinbeau, Vice President/Branch Administrator   Thomas A. Noice    Stephanie A. LaFlam, Vice President/Human Resource Manager/Secretary   William G. Petroplus    Laura A. Schmidt, Assistant Vice President/Accounting Officer   David R. Rexroad    James W. Gasperowich, Assistant Vice President/Credit Analyst   Dale F. Riggs    Todd J. Hayes, Assistant Vice President/Business Development Officer   Thomas L. Sable    Janey S. Longwell, Assistant Vice President/Office Manager New Martinsville      Debra M. Tomlin, Assistant Vice President/Loan Officer      Rebecca A. Palmer, Assistant Vice President/Manager Data Processing   DIRECTOR EMERITUS    Kimberly A. Hughes, Loan Review Officer      Harold O. Thomas, Senior Business Development Officer   Edward P. Otte    Brenda K. Bellville, Information Systems Officer      Mitzi K. Mattern, Operations Officer      Beth A. Heyman, Office Manager Woodsdale      Tina M. Mehlman, Office Manager Warwood      Michelle R. Miller, Office Manager Bellaire      Johanna Sanders, Office Manager Wellsburg      Susan M. Scotka, Office Manager Bethlehem      Jacquie J. Fultz, Office Manager Weston      Vickie D. Poling, Loan Officer       Nada E. Beneke, Assistant Secretary    36    First West Virginia Bancorp, Inc. and Subsidiary  Corporate Information  Corporate Office:  First West Virginia Bancorp, Inc.  1701 Warwood Avenue  Wheeling, WV 26003  (304) 277-1100  Transfer Agent:  Any inquiries related to stockholder records, stock transfers, changes of ownership, and changes of address should be sent to the transfer agent at the following address:  Investor Relations Department  Registrar and Transfer Company  10 Commerce Drive  Cranford, New Jersey 07016-9982  (800) 368-5948  Stock Trading Information:  First West Virginia Bancorp, Inc.’s common stock is traded on the American Stock Exchange, Inc. primary list under the symbol FWV.  Annual Meeting  The Annual Meeting of Stockholders will be held at 4:00 p.m, on Tuesday, April 11, 2006, at the Warwood Office of Progressive Bank, N.A., 1701 Warwood Avenue, Wheeling, WV 26003  Form 10-K  Upon written request any shareholder of record on December 31, 2005, may obtain a copy of the Corporation’s 2005 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 31, 2006) by writing to the Secretary, First West Virginia Bancorp, Inc., 1701 Warwood Avenue, Wheeling, WV 26003      EX-13.2 5 dex132.htm MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS   Management's Report on Financial Statements   Exhibit 13.2  MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS  The Corporation’s consolidated financial statements and the related information appearing in this Annual Report were prepared by management in accordance with generally accepted accounting principles and where appropriate reflect management’s best estimates and judgment. The financial statements and the information related to those statements contained in the Annual Report are the responsibility of management.  The accounting systems of the Corporation include internal accounting controls which safeguard the Corporation’s assets from material loss or misuse and ensure that transactions are properly authorized and recorded in its financial records, and designed to provide reasonable assurance as to the integrity and reliability of the financial records. There are inherent limitations in all systems of internal control based on the recognition that the cost of such systems should not exceed the benefits to be derived. The accounting system and related controls are reviewed by a program of internal audits performed by the internal auditor and independent auditors.  Our independent auditors are responsible for auditing the Corporation’s financial statements in accordance with generally accepted auditing standards and to provide an objective, independent review of the fairness of reported operating results and financial position of the Corporation.  The Corporation’s internal auditor and independent auditors have direct access to the Audit committee of the Board of Directors. This committee meets periodically with the internal auditor, the independent auditors, and management to ensure the financial accounting and audit process is properly conducted.      EX-21.1 6 dex211.htm SUBSIDIARIES OF THE HOLDING COMPANY   Subsidiaries of the Holding Company   EXHIBIT 21.1  Subsidiaries of the Holding Company      1. Progressive Bank, N.A. of Wheeling, West Virginia, a national banking association with offices in Wheeling, Wellsburg, Moundsville, New Martinsville, Buckhannon and Weston, West Virginia and Bellaire, Ohio.      EX-23 7 dex23.htm CONSENT OF S.R. SNODGRASS, A.C.   Consent of S.R. Snodgrass, A.C.   EXHIBIT 23  Consent of Independent Registered Public Accounting Firm    S.R. SNODGRASS  Certified Public Accountants and Consultants  CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  We hereby consent to the inclusion in this Annual Report on Form 10-K of our report dated February 18, 2006 on the consolidated balance sheets of First West Virginia Bancorp, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. Said report appears in this Form 10-K under Part II, Item 8.         /s/ S. R. Snodgrass  Wheeling, West Virginia  March 24, 2006  S.R. Snodgrass, A.C.  980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile: 304-233-3062      EX-31 8 dex31.htm SECTION 302 CEO CERTIFICATION   Section 302 CEO Certification   EXHIBIT 31  Certification of Chief Executive Officer pursuant to section 302 of the Securities and Exchange Act of 1934.  Certification  I, Sylvan J. Dlesk, certify that:  I have reviewed this annual report on Form 10-K of First West Virginia Bancorp, Inc.;  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.        Date: March 22, 2006     /s/ Sylvan J. Dlesk  Sylvan J. Dlesk  Chairman, Interim President and Chief Executive Officer/Director  (Principal Executive Officer)      EX-31.1 9 dex311.htm SECTION 302 CFO CERTIFICATION   Section 302 CFO Certification   EXHIBIT 31.1  Certification of Chief Financial Officer pursuant to section 302 of the Securities and Exchange Act of 1934.  Certification  I, Francie P. Reppy, certify that:  I have reviewed this annual report on Form 10-K of First West Virginia Bancorp, Inc.;  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.        Date: March 22, 2006     /s/ Francie P. Reppy  Francie P. Reppy   Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Principal Financial Officer)      EX-32 10 dex32.htm SECTION 906 CEO AND CFO CERTIFICATION   Section 906 CEO and CFO Certification   EXHIBIT 32  CERTIFICATION PURSUANT TO 18 U.S.C. §§1350,  AS ADOPTED PURSUANT TO SECTION 906 OF THE  SARBANES-OXLEY ACT OF 2002  In connection with the Annual Report on Form 10-K for the year ended December 31, 2005, (the “Report”) of First West Virginia Bancorp, Inc., the (“Company”) as filed with the Securities and Exchange Commission on the date hereof, each of the undersigned, in the capacities and on the dates indicated below certify pursuant to 18 U.S.C. §§1350, as adopted pursuant to §§906 of the Sarbanes-Oxley Act of 2002, that:        (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and        (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.          Date: March 22, 2006    /s/ Sylvan J. Dlesk     Sylvan J. Dlesk      Chairman, Interim President and Chief Executive Officer/Director (Principal Executive Officer)     Date: March 22, 2006    /s/ Francie P. Reppy     Francie P. Reppy      Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Chief Financial Officer)      EX-99 11 dex99.htm PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING   Proxy Statement for the Annual Shareholders Meeting   EXHIBIT 99  NOTICE OF ANNUAL MEETING OF THE  SHAREHOLDERS OF  FIRST WEST VIRGINIA BANCORP, INC.  Wheeling, West Virginia  March 17, 2006  TO OUR SHAREHOLDERS:  Please take notice that the Annual Meeting of Shareholders of First West Virginia Bancorp, Inc., a West Virginia corporation, will be held at the Warwood Office of Progressive Bank, N.A., 1701 Warwood Avenue, Wheeling, West Virginia, at 4:00 p.m., on April 11, 2006. Shareholders of record at the close of business on March 9, 2006 will be entitled to vote.  While the Board of Directors sincerely hopes that all of you will attend the meeting, we nevertheless urge you to COMPLETE, DATE, SIGN AND RETURN THE PROXY FORM, ENCLOSED, AS SOON AS POSSIBLE. A self-addressed stamped envelope is provided for that purpose. You should return the proxy whether or not you plan to attend the meeting in person. If you do attend the meeting, you may revoke the proxy and vote in person if you so desire.  The purposes of the Annual Meeting are as follows:  1. To elect two directors for a term of two (2) years;  2. To elect three directors for a term of three (3) years;  3. To transact such other business as may lawfully be brought before the meeting.        By order of the Board of Directors.     /s/ Stephanie A. LaFlam  STEPHANIE A. LAFLAM  Secretary    FIRST WEST VIRGINIA BANCORP, INC.  1701 Warwood Avenue, Wheeling, West Virginia 26003  PROXY STATEMENT  For Annual Meeting of Shareholders to be Held April 11, 2006  This proxy statement is furnished to the shareholders of First West Virginia Bancorp, Inc., (the “Company”), in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders to be held April 11, 2006, and at all adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. This proxy statement and the enclosed form of proxy are first being mailed to shareholders on or about March 17, 2006.  Whether or not you expect to be personally present at the meeting, you are requested to fill in, sign, date and return the enclosed form of proxy. A proxy may be revoked at any time before it is voted at the meeting by executing a later dated proxy or by voting in person at the meeting, or by filing a written revocation with the judges of election. All shares represented by duly executed proxies in the accompanying form will be voted unless revoked prior to the voting thereof. The presence, in person or by proxy, of a majority of the outstanding shares of common stock is required to constitute a quorum.  The close of business on March 9, 2006 has been fixed as the record date for the determination of shareholders entitled to vote at the Annual Meeting of Shareholders. As of the record date, there were outstanding and entitled to be voted at such meeting 1,538,443 shares of common stock less 10,000 shares held in treasury. The holders of the common stock will be entitled to one vote for each share of common stock held of record on the record date. In the election for directors votes may be cumulated if a shareholder requests cumulative voting for directors at least 48 hours before the meeting. Please see Election of Directors and Voting, below.  A copy of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2005 accompanies this proxy statement.  The solicitation of this proxy is made by the Board of Directors of the Company. The solicitation will be by mail and the expense thereof will be paid by the Company. In addition, solicitation of proxies may be made by telephone or other means by directors, officers or regular employees of the Company.  I. Election of Directors  Nominees and Continuing Directors  The Board of Directors is divided into three classes, with the terms of office of each class ending in successive years. Two directors of the Company are to be elected to Class I, for terms expiring at the Annual Meeting in 2008 or until their respective successors have been elected and have qualified. These individuals fill the two previous Class I vacancies. Three directors of the Company are to be elected to Class II, for terms expiring at the Annual Meeting in 2009 or until their respective successors have been elected and have qualified. Certain information with respect to the nominees for election as directors proposed by the Company and the other directors whose terms of office as directors will continue after the Annual Meeting is set forth below. Should any one or more of the nominees be unable or unwilling to serve (which is not expected), the proxies (except proxies marked to the contrary) will be voted for such other person or persons as the Board of Directors of the Company may recommend.  Directors are elected by plurality of the votes voted. As required by West Virginia law, each share is entitled to one vote per nominee, unless a shareholder requests cumulative voting for directors at least 48 hours before the meeting. If a shareholder properly requests cumulative voting for directors, then each shareholder will have the right to vote the number of shares owned by that shareholder for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of shares owned shall equal, or to distribute them on the same principle among as many candidates as the shareholder sees fit. If any shares are voted cumulatively for the election of directors, the proxies, unless otherwise directed, shall have full discretion and authority to cumulate their votes and vote for less than all such nominees. For all other purposes, each share is entitled to one vote.    1    THE BOARD OF DIRECTORS RECOMMENDS THAT  SHAREHOLDERS VOTE FOR THE NOMINEES FOR DIRECTOR              Name, Age, Principal Occupation or Position, Other Directorships (11)(12)    Served asDirectorSince (1)    Shares ofthe Company’sCommon StockBeneficiallyOwned (2)         To be elected to Class I, to continue in office until 2008                Gary W. Glessner*, 39    2005    3,000         Certified Public Accountant, President of Glessner &            Associates, PLLC; Owner of GW Rentals, LLC; Owner of            GIO, Inc.; Owner of Market House Bar & Grill; Director of            Progressive Bank, N.A.                Thomas L. Sable*, 48    2005    6,222 (3)   Owner of Bellaire Hardware; Managing Partner, Summit            Atlantic Group, LLC; Village Clerk/ Auditor, Village of Bellaire;            Director of Progressive Bank, N.A.                To be elected to Class II, to continue in office until 2009                Sylvan J. Dlesk*, 67    1988    161,459 (4)   Chairman of the Board and Interim President and Chief Executive            Officer of the Company; Owner of Dlesk Realty and Investment            Company; President of Dlesk, Inc., President of Ohio            Valley Carpeting, Inc.; Director of Progressive Bank, N.A.                James C. Inman*, Jr., 64    1993    120,000 (5)   Retired Bank Executive; Director of            Progressive Bank, N.A.                Thomas A. Noice*, 83    1988    1,864 (6)   Trustee-Treasurer, Belmont Community Hospital,            Bellaire, Ohio; Retired Bank Executive; Director of            Progressive Bank, N.A.                Class III Directors, to continue in office until 2007                R. Clark Morton, 77    1965    47,018 (7)   Attorney-at-Law, Partner, Herndon, Morton,            Herndon & Yaeger; Chairman of the Board and Director of Progressive Bank, N.A.                William G. Petroplus, 58    1998    7,420 (8)   Attorney-at-Law, Member/Partner, Petroplus &            Gaudino; Director of Progressive Bank, N.A.                Nada E. Beneke, 50    2001    43,236 (9)   Sanitarian, Ohio County Health Department;            President of the Beneke Corporation; and            Director of Progressive Bank, N.A.                Class I Directors, to continue in office until 2008                Laura G. Inman, 64    1993    120,000 (10)   Vice Chairman of the Board of the Company            Retired Bank Executive; Director of Progressive Bank, N.A.             * Director Nominee    2            Notes   (1)    Includes service with the Company’s predecessors.     (2)    Beneficial ownership of First West Virginia common stock is stated as of February 13, 2006. Under rules of the Securities and Exchange Commission, persons who have power to vote or dispose of securities, either alone or jointly with others, are deemed to be the beneficial owners of such securities. Shares owned separately by spouses are included in the column totals but are identified in the footnotes which follow. Each person reflected in the table has both sole voting power and sole investment power with respect to the shares included in the table, except as described in the footnotes.     (3)    Includes 6,222 shares owned jointly by Thomas L. Sable and Janice M. Sable, his wife.     (4)    Includes 1,817 shares owned by Rosalie J. Dlesk, his wife, and 158,142 shares owned jointly by Sylvan J. Dlesk and Rosalie J. Dlesk.     (5)    Includes 100,000 shares owned by Laura G. Inman, his wife.     (6)    Includes 664 shares owned jointly by Judith A. Noice, wife of Thomas A. Noice, and Julia Vejvoda.     (7)    Includes 24,085 shares owned by Patricia H. Morton, his wife, and 12,048 shares owned jointly by R. Clark Morton and Patricia H. Morton.     (8)    Includes 808 shares owned jointly by William G. Petroplus and Sheree A. Petroplus; 403 shares owned by Sheree A. Petroplus, his wife; 403 shares owned by Kristen G. Petroplus, his daughter, for which William G. Petroplus acts as custodian; and 403 shares owned jointly by Alyssa R. Petroplus, his daughter, for which William G. Petroplus acts as custodian.     (9)    Includes 14,149 shares owned by the Beneke Corporation, of which Ms. Beneke serves as President.     (10)    Includes 20,000 shares owned by James C. Inman, Jr., her husband.     (11)    The subsidiary of the Company is: Progressive Bank, N.A., Wheeling, West Virginia.     (12)    The nominees and continuing directors have had the same position or other executive positions with the same employer during the past five years with the exception of Charles K. Graham who previously served as Executive Vice President of the Company, President of Progressive Bank, N.A. and Director of Progressive Bank, N.A.—Buchanan in which positions he served for the preceding five years.  Certain Business Relationships  Mr. Petroplus is an attorney with Petroplus & Gaudino, attorneys-at-law, of Wheeling, West Virginia, which firm serves as general counsel to the Company.  Mr. Morton is an attorney with Herndon, Morton, Herndon & Yaeger, attorneys-at-law, of Wheeling, West Virginia, which firm serves as special counsel to the Company.  Dlesk Realty and Investment Company which is owned by Mr. Dlesk and his wife Rosalie J. Dlesk serves as landlord to the Company’s subsidiary bank, Progressive Bank, N.A., under a lease agreement to rent property for use as a banking premises.  Board of Directors and Committees  There were 12 regular meetings and two special meetings of the Board of Directors of the Company during 2005. All directors attended at least 75 percent of meetings held while serving as director. Each director is compensated at the rate of $700.00 per regular meeting and at the rate of $225.00 for each special meeting. The standing committees of the Board include: Audit Committee, Corporate Governance/Human Resource and Compensation Committee, and Nominating Committee. Audit Committee members are compensated at the rate of $450.00 for five regular meetings and at the rate of $225.00 for any additional meetings. The Chairman of the Audit Committee receives additional compensation of $100.00 per quarter for services in that capacity. The Corporate Governance/Human Resource and Compensation and Nominating Committee members are compensated at the rate of $225.00 for attendance at each committee meeting, unless a special meeting is held following a regular meeting in which event there is no additional compensation at the special meeting.  Audit Committee  The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to the shareholders, any governmental body, and others; the Company’s systems of internal control regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Company’s auditing, accounting and financial reporting processes. The Audit Committee operates pursuant to a written charter, and the charter is attached as an appendix to this proxy statement. The committee met ten times during 2005. The members of the committee consist of non-salaried directors and presently include Thomas A. Noice, chairman, Nada E. Beneke, Gary W. Glessner, R. Clark Morton and Thomas L. Sable.    3    The Company’s board of directors has determined that Gary W. Glessner and Thomas A. Noice meet the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission. The board of directors believes that both Mr. Glessner and Mr. Noice have the following five attributes to qualify as an “audit committee financial expert.” Mr. Glessner is a licensed Certified Public Accountant and Mr. Noice acquired these attributes through his various courses in accounting and finance at Ohio University and 43 years of general banking experience, including services as president of Farmers & Merchants National Bank in Bellaire, Ohio. These directors, through education and experience, have: an understanding of financial statements and generally accepted accounting principles; an ability to assess the general application of generally accepted accounting principles in connection with accounting for estimates, accruals and reserves; some experience in preparing, auditing, analyzing and evaluating financial statements that present a level of complexity of accounting issues comparable to the breadth of issues that could reasonably be expected to be presented by the Company’s financial statements; an understanding of internal controls; and, an understanding of audit committee functions. The Company believes that each member of the audit committee has sufficient knowledge in financial and auditing matters to serve on the committee. The committee has authority to engage legal counsel, other experts or consultants as it deems appropriate to carry out its responsibilities.  Report of the Audit Committee  The Audit Committee’s primary duties and responsibilities are to serve as an independent and objective monitor of the Company’s financial reporting process and internal control system; review and appraise the audit efforts of the Company’s independent accountants and internal auditing department; and to provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditing department, and the Board of Directors.  The charter for the Audit Committee is reviewed annually. The committee met ten times during 2005. The Audit Committee reviewed and discussed the Company’s annual audited financial report with management. The Committee discussed with independent auditors, S.R. Snodgrass A.C., who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU 380). The Committee also received and reviewed the written disclosures and the letter from independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as may be modified or supplemented, and has discussed with the independent accountant the independent accountant’s independence. Additionally, the Audit Committee reviewed reports of the internal audit director concerning the results of the examinations of the accounting controls and procedures reviewed. The committee also reviewed various other matters pertaining to the business and operations of the Corporation during the year, including the scope and planning of the audits and the internal control procedures. Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The Audit Committee also recommended to the Board of Directors the appointment of S.R. Snodgrass, A.C. as the independent auditors for the Company for 2006.          March 9, 2006    Audit Committee:         Thomas A. Noice, Chairman      Nada E. Beneke      Gary W. Glessner      R. Clark Morton      Thomas L. Sable  This report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, unless the Company specifically incorporates this report by reference. It will not otherwise be filed under such Acts.  Nominating Committee  The board of directors has established a formal nominating committee for the selection of directors of the Company, consisting of non-salaried directors and presently including William G. Petroplus, chairman, Thomas A. Noice and Nada E. Beneke. The committee met one time during 2005. Each of the nominating committee’s members is independent as that term is defined by the American Stock Exchange. The nominating committee does have a charter. The Nominating committee requires that candidates for director should have certain minimum qualifications, including:        •   Directors should be of the highest ethical character;        •   Directors should have excellent personal and professional reputations in the Company’s market area;        •   Directors should be accomplished in their professions or careers;        •   Directors should be able to read and understand financial statements and either have knowledge of, or the ability and willingness to learn, financial institution law;    4        •   Directors should have relevant experience and expertise to evaluate financial data and provide direction and advice to the chief executive officer and the ability to exercise sound business judgment;        •   Directors must be willing and able to expend the time to attend meetings of the board of directors of the Company and the bank and to serve on board committees;        •   The board of directors will consider whether a nominee is independent, as legally defined. In addition, directors should avoid the appearance of any conflict and should be independent of any particular constituency and be able to serve all shareholders of the Company;        •   Because the directors of the Company also serve as directors of the bank, a majority of directors must be residents of West Virginia, as required by state banking law;        •   Directors must be acceptable to the Company’s and the bank’s regulatory agencies, including the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation and West Virginia Division of Banking and must not be under any legal disability which prevents them from serving on the board of directors or participating in the affairs of a financial institution;        •   Directors must own or acquire sufficient capital stock to satisfy the requirements of law and the bylaws of the bank; and,        •   Directors must be at least 21 years of age.  The board of directors of the Company reserves the right to modify these minimum qualifications from time to time, except where the qualifications are required by the laws relating to financial institutions.  The process of the nominating committee for identifying and evaluating nominees is as follows: In the case of incumbent directors whose terms are set to expire, the nominating committee considers the directors’ overall service to the Company during their term, including such factors as the number of meetings attended, the level of participation, quality of performance and any transactions between such directors of the Company and the bank. The nominating committee also reviews the payment history of loans, if any, made to such directors of the bank to ensure that the directors are not chronically delinquent and in default. The nominating committee considers whether any transactions between the directors and the bank have been criticized by any banking regulatory agency or the bank’s external auditors and whether corrective action, if required, has been taken and was sufficient. The nominating committee also confirms that such directors remain eligible to serve on the board of directors of a financial institution under federal and state law. For new director candidates, the nominating committee uses its network of contacts in the Company’s market area to compile a list of potential candidates. The nominating committee then meets to discuss each candidate and whether he or she meets the criteria set forth above. The nominating committee then discusses each candidate’s qualifications and chooses a candidate by majority vote.  The nominating committee will consider director candidates recommended by stockholders, provided that the recommendations are received at least 120 days before the next annual meeting of shareholders. In addition, the procedures set forth below are followed by stockholders for submitting nominations. The nominating committee does not intend to alter the manner in which it evaluates candidates, regardless of whether or not the candidate was recommended or nominated by a shareholder.  The Company’s bylaws provide that nominations for election to the board of directors, other than those made by or on behalf of the Company’s existing management, must be made by a shareholder in writing delivered or mailed to the president not less than 14 days nor more than 50 days prior to the meeting called for the election of directors; provided, however, that if less than 21 days’ notice of the meeting is given to shareholders, the nominations must be mailed or delivered to the president not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. The notice of nomination must contain the following information, to the extent known:        •   Name and address of proposed nominee(s);        •   Principal occupation of nominee(s);        •   Total shares to be voted for each nominee;        •   Name and address of notifying shareholder; and        •   Number of shares owned by notifying shareholder.  Nominations not made in accordance with these requirements may be disregarded by the chairman of the meeting and in such case the votes cast for each such nominee will likewise be disregarded. The nominees for election at this year’s meeting are two new directors for Class I and three incumbent directors. No shareholder recommendations or nominations have been made.  Corporate Governance/Human Resource and Compensation Committee  The functions of the Corporate Governance/Human Resource and Compensation Committee are to review and recommend the salaries and annual bonuses of all executive officers; recommend the annual contribution to the employees’ profit sharing plan; and monitor senior management and succession plans. The Board of Directors reviews the committee    5    recommendations for final action thereon. Company performance is considered in establishing the annual budget for salary increases and is the initial part of the review process. Company performance factors, including net income and return on equity, and individual performance are considered in setting annual bonuses. The committee does have a charter. The committee met eight times during 2005. The members of the committee consist of non-salaried directors, except for Sylvan J. Dlesk who presently receives compensation for services as Interim President and Chief Executive Officer of the Company. The Committee members presently include S.J. Dlesk, chairman, Laura G. Inman, Thomas A. Noice, and William G. Petroplus.  II. Executive Compensation  The following table shows all compensation awarded to, earned by or paid to the Company’s Interim President and Chief Executive Officer, Sylvan J. Dlesk; and Executive Vice President, Chief Administrative Officer, Chief Financial Officer and Treasurer, Francie P. Reppy for all services rendered by them in all capacities to First West Virginia Bancorp, Inc. and its subsidiary for 2005. No executive officers of First West Virginia Bancorp, Inc. had total annual salary and bonus exceeding $100,000 for the year.  SUMMARY COMPENSATION TABLE                         Name and Position    Annual Compensation         Year    Salary     Bonus(1)     Other Annual Compensation     All Other Compensation    Sylvan J. Dlesk, age 67, Interim President and Chief Executive Officer of the Company; Interim President and Chief Executive Officer of Progressive Bank, N.A.    200520042003    $$$ 54,000.000.000.00 (2)     $$$ 0.000.000.00    $$$ 0.000.000.00    $$$ 22,800.0013,575.0014,100.00 (3)(3)(3)  Charles K. Graham, age 60, Former President and Chief Executive Officer and Former Acting Chief Operating Officer of the Company; Former President and Chief Executive Officer and Former Acting Chief Operating Officer of Progressive Bank, N.A.    200520042003    $$$ 44,307.37144,000.00132,399.00       $$$ 0.0048,984.0058,119.00    $$$ 0.000.000.00    $$$ 444.9620,294.0217,532.97 (4)(4)(4)  Francie P. Reppy, age 45, Executive Vice President, Chief Administrative Officer, Chief Financial Officer and Treasurer of the Company, Executive Vice President, Chief Administrative Officer and Chief Financial Officer of Progressive Bank, N.A.    200520042003    $$$ 87,333.3676,000.0072,900.00       $$$ 0.0025,853.0031,996.00    $$$ 0.000.000.00    $$$ 8,558.5410,908.5610,951.34 (4)(4)(4)    (1) This amount includes deferred compensation.    (2) This amount is for the term April 2005 through December 2005.    (3) This amount includes director fees.    (4) This amount includes contributions made to Company’s Profit Sharing Plan and 401(k) Plan.  Board Compensation Committee Report on Executive Compensation  The Corporate Governance/Human Resource and Compensation Committee (the “Committee”) has the responsibility for recommending to the Board of Directors of the Company, and subject to final approval by the Board of Directors of the Company, the annual salary, raise and bonus determinations for the executive officers of the Company. The Committee endeavors to determine executive compensation in a manner designed to provide competitive compensation sufficient to retain and attract key executives, but based primarily on the overall performance of the Company.  Company performance is considered in establishing the annual budget for any executive salary increase and is the initial part of the review process of the Committee. The determination of bonuses, as detailed below, is predicated on the Company’s earnings in the previous year, the increase in corporate net worth and individual performance.  However, the Committee also is acutely aware that the purpose of our executive officers is to generate earnings for the shareholders of the Company. Therefore, the Committee’s philosophy for its Executive Compensation Incentive Plan does not deviate from that avowed purpose. The plan consists of two basic steps. The first step is an earnings plateau which    6    establishes the annual percentage return to the Company (based on corporate net worth) which was expected to be reached. The amount of return in excess of that expected percentage forms the basis for the bonus pool. The philosophy underlying this first earnings plateau is as follows.  Earnings to the extent of the determined percentage of corporate net worth are intended to provide for the following purposes:        (a) Payment of income taxes thereon;        (b) Payment of regularly established quarterly dividends;        (c) Provide for increases in subsequent executive salaries attributable to inflation;        (d) Provide for an increase to the regularly established quarterly dividend for the next year in the same percentage as the percentage of salary raises granted executives to compensate for inflation; and,        (e) Provide for growth of corporate net worth.  Earnings in excess of that percentage of corporate net worth are available for distributions for bonuses to executive officers excepting any extraordinary profits received from the sale of assets owned by the Company and its subsidiary, with the exception of the subsidiary’s ordinary investment portfolio. The second basic step of the plan apportions earnings in excess of the first plateau. The Committee has divided those excess earnings into five incremental categories. Beginning with the first $400,000.00 of such excess and for each increment thereafter, the Committee has determined what percentage will be paid as executive bonuses. In addition to bonus payments, from each such increment comes a percentage for payment of income taxes thereon, and a payment for dividends to shareholders and to provide for growth of corporate net worth. After the first $400,000.00 increment has been exhausted, the second category consists of the next $300,000.00 of such excess earnings. After that has been exhausted, the third category consists of the next $200,000.00 of such excess earnings. After that has been exhausted, the fourth category consists of the next $100,000.00 of such excess earnings. Finally, after that has been exhausted, the fifth category consists of all excess earnings over $1,000,000.00. The underlying goal of the Committee’s determinations is to provide a strong incentive for all executives to strive to increase the annual earnings of the Company for the benefit of its shareholders.  The compensation of Sylvan J. Dlesk, Interim President and Chief Executive Officer of the Company, and Francie P. Reppy, Executive Vice President, Chief Administrative Officer, Chief Financial Officer and Treasurer of the Company, as well as the other executive officers of the Company, is comprised of a base salary which is directly related to the responsibilities of their respective positions and a bonus which is related to the Company’s performance. The executive officers of the Company work together as a corporate team and, as such, bear the principal burden of corporate management decisions, with Mr. Dlesk, as Interim Chief Executive Officer, bearing final responsibility. Therefore, these executive officers have participated more heavily in the division of bonus awards. All compensation recommendations of the Committee for the year ended December 31, 2005, were approved by the Board of Directors of the Company.  With respect to the executive officers of the Company, the Committee believes their respective compensation levels to be commensurate with those of similarly positioned executives in similar corporations.        S. J. Dlesk, Chairman  Laura G. Inman  Thomas A. Noice  William G. Petroplus  This report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, unless the Company specifically incorporates this report by reference. It will not otherwise be filed under such Acts.  Compensation Committee Interlocks and Insider Participation  As indicated, the Corporate Governance/Human Resource and Compensation Committee has responsibility for annual raises and bonuses to the executive officers of the Company. The members of the committee presently include S.J. Dlesk, chairman, Laura G. Inman, Thomas A. Noice, and William G. Petroplus. The Corporate Governance/Human Resource and Compensation Committee reviews the Company’s overall progress and projections to year end. All actions by the Corporate Governance/Human Resource and Compensation Committee are presented to the full Board of Directors for final approval. Other than Mr. Dlesk, no family relationships exist between the Corporate Governance/Human Resource and Compensation Committee and the Company’s executive officers, nor do any of the directors of the Company serve on personnel committees of any other corporation.    7    Executive Officers; Additional Compensation  The subsidiary bank has paid bonuses to its executive officers. Decisions as to the issuance of a bonus and the amount paid in each year is determined by the Company’s Board of Directors. The Board of Directors accrued no bonuses to its executive officers in 2005. The aggregate amount of bonuses to the executive officers of the Company accrued for 2004 and paid in 2005 was $89,922.00; and accrued for 2003 and paid in 2004 was $132,600.00.  Other than bonuses paid to its executive officers, neither the Company nor its existing subsidiary has any type or plan of additional compensation that may discriminate in scope, terms or operation in favor of the officers or directors of the Company. The Company does maintain a noncontributory profit-sharing plan for employees of its existing subsidiary who are 21 years of age or older, have worked for the bank in excess of one year and are not parties to a collective bargaining agreement. This plan has received a favorable determination letter from the Internal Revenue Service. The Company makes contributions to the profit-sharing plan based upon a discretionary contribution ranging from zero percent to 15 percent of total compensation as fixed by appropriate action of the banks before the close of the year. This contribution is distributed according to a four-tiered integrated allocation formula. In the first tier, the allocation is made by taking three percent of each participant’s compensation. This amount is then distributed to the employee’s separate retirement accounts. In the second tier, any amount of the total contribution remaining undistributed by the first tier is then allocated and distributed by taking each participant’s compensation in excess of $22,500.00 and multiplying that amount by three percent. If Company contributions are insufficient to fund to this level, the Company will determine the uniform allocation percentage to allocate to those participants who have compensation in excess of the integration level of $22,500.00. The uniform allocation percentage is determined by taking the remaining contribution and dividing this amount by the total excess compensation of participants. In the third tier, any amount of the total contribution remaining undistributed by the first and second tier are allocated and distributed by taking each participant’s compensation plus the excess compensation and multiplying that amount by 1.3%. If Company contributions are insufficient to fund to this level, the Company will determine the uniform allocation percentage to allocate to those participants who have compensation in excess of the integration level and excess compensation. The uniform allocation percentage is determined by taking the remaining contribution and dividing this amount by the total compensation including excess compensation of participants. Any amount of the total contribution remaining undistributed by the first, second and third tier is then allocated and distributed to the employee’s retirement accounts on a pro rata basis based upon the percentage of each employee’s compensation compared to total compensation. Employees are entitled to the balances in their separate retirement accounts at either normal retirement age, disability or death, but the amount of such benefits cannot accurately be predicted due to the discretionary nature of the contributions. Contributions during 2003 amounted to $162,000.00, of which $42,267.51 was to the benefit of the executive officers of the Company. For 2004 the contribution was $172,000.00, of which $33,980.16 was to the benefit of the executive officers. Contributions during 2005 amounted to $98,070.00, of which $16,622.27 accrued to the benefit of the executive officers.  The Company’s profit sharing plan includes a 401(k) feature. That feature qualifies as a tax-deferred savings plan under Section 401(k) of the Internal Revenue Code (The “401(k) Plan”) for Company employees who are at least 21 years old, have completed a minimum of 1000 hours of service, and who have completed one year of service with the bank. Under the 401(k) Plan, eligible employees may contribute up to 50% of their gross salary to the 401(k) Plan or $14,000.00, whichever is less ($15,000.00 as of January 1, 2006). If an employee is age 50 or older and makes the maximum allowable deferral to the Plan, they are entitled to contribute an additional “catch-up contribution.” The catch-up contribution is intended to help eligible employees make up for smaller contributions made earlier in their careers. The maximum catch-up contribution for 2005 was $4,000 (maximum of $5,000 in 2006.) Each participating employee is fully vested in contributions made by such employee. The bank has elected to provide a matching contribution for participants which elect to make employee 401(k) contributions. The matching contribution is 50% of the participant’s contribution up to 2% of the participant’s covered compensation and 25% of the participant’s contribution up to the next 2% of the participant’s covered compensation. The Company’s share of the contribution during 2005 was $23,726.00 of which $3,022.60 was for the benefit of the executive officers. For 2004, the Company’s share of the contribution was $24,208.79 of which $4,786.03 was for the benefit of the executive officers of the Company. For 2003, the Company’s share of the contribution was $22,934.00 of which $5,009.34 was to the benefit of the executive officers.  The Company also has a non-qualified deferred compensation plan for its executive officers. Under the plan, each executive officer may elect to defer up to 50 percent of their bonus. The executive officers are generally entitled to the balances in their separate deferred compensation accounts at either normal retirement age, disability or death, or other termination of employment. The amount of such benefits cannot be accurately predicted due to the discretionary nature of the underlying bonus and the deferral percentage.    8    Shareholder Performance Graph  Set forth below is a line graph prepared by SNL Securities L.C. (“SNL”), which compares the percentage change in the cumulative total shareholder return on the Company’s common stock against the cumulative total shareholder return on stocks included on the SNL Index for banks with assets under $500 million and the Russell 2000 Index for the period December 31, 2000 through December 31, 2005. An initial investment of $100.00 (Index value equals $100.00) and ongoing dividend reinvestment is assumed throughout.     This report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, unless the Company specifically incorporates this report by reference. It will not otherwise be filed under such Acts.  III. Compliance with Section 16(a) of the Securities Exchange Act of 1934  Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers, and beneficial owners of more than 10 percent of the common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Reporting persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed by them. Based on a review of the copies of Section 16(a) forms received by the Company, and on written representations from reporting persons concerning the necessity of filing a Form 5 - Annual Statement of Changes in Beneficial Ownership, the Company believes that all filing requirements applicable to reporting persons were met except that Gary W. Glessner filed a Form 5 report eighteen (18) business days late and Thomas L. Sable filed a Form 5 report eighteen (18) business days late.  IV. Security Ownership of Management and Certain Beneficial Owners  Security Ownership of Management  The following table sets forth, as of February 13, 2006, the name and address of each director and nominee who owns of record to be the beneficial owner of more than 5 percent of the Company’s stock, the number of shares beneficially owned, the percentage of stock so owned, and the percent of stock beneficially owned by all directors and executive officers of the Company as a group. The “beneficial ownership” of a security by an individual is determined in accordance with the rules of the Securities and Exchange Commission. Unless otherwise noted, sole voting power and sole investment power with respect to the shares shown in the table below are held either by each individual listed or by such individual together with their spouse.    9               Name & Address    Shares of StockBeneficially Owned     Percentof Total     Sylvan J. Dlesk Highland Park Wheeling, WV 26003    161,459 (1)   10.56 %       James C. Inman, Jr. R.D. 1 Wellsburg, WV 26070    120,000 (2)   7.85 %       Laura G. Inman R.D. 1 Wellsburg, WV 26070    120,000 (3)   7.85 %      Officers and Directors as a Group (12 persons)    390,998     25.58 %        Notes    (1)      Includes 1,817 shares owned by Rosalie J. Dlesk, his wife, and 158,142 shares owned jointly by Sylvan J. Dlesk and Rosalie J. Dlesk.      (2)      Includes 100,000 shares owned by Laura G. Inman, his wife.      (3)      Includes 20,000 shares owned by James C. Inman, Jr., her husband.  Other than those individuals listed above, as of February 13, 2006, no person was known by the Company to be the beneficial owner of more than 5 percent of the Company’s stock.  V. Transactions with Management and Others  Management personnel of the Company and its subsidiary bank have had and expect to continue to have banking transactions with the bank in the ordinary course of business. Extensions of credit to such persons are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Management believes that these transactions do not involve more than a normal risk of collectibility or present other unfavorable features.  The Company’s subsidiary bank, Progressive Bank, N.A., entered into a lease agreement in 2001 to rent property for use as a banking premises from Dlesk Realty and Investment Company which is owned by Sylvan J. Dlesk and Rosalie J. Dlesk. Sylvan J. Dlesk is Chairman, Interim President and Chief Executive Officer, and a director of the Company. Payments to Dlesk Realty and Investment Company for rental, maintenance, taxes and improvements during 2005, 2004 and 2003 amounted to $61,400.04, $61,400.04 and $61,400.04, respectively. Management believes that these payments and lease terms were made on no more favorable terms to the subsidiary bank than would have been extended to third parties not otherwise affiliated with the Company or its subsidiary.  With the exception of S.J. Dlesk, none of the directors, executive officers, beneficial owners or immediate family members have an interest or are involved in any transactions with the Company or its bank in which the amount involved exceeds $60,000.00, or was not subject to the usual terms and conditions, or was not determined by competitive bids. Similarly, no director, executive officer or beneficial owner has an equity interest in excess of 10 percent in a business or professional entity that has made payments to or received payments from the Company or its bank in 2003, 2004 or 2005 which exceed 5 percent of either party’s gross revenue for those periods, respectively.  VI. Voting  The affirmative vote of the holders of a majority of the shares entitled to vote which are present in person or represented by proxy at the 2006 Annual Meeting is required to elect directors and to act on any other matters properly brought before the meeting. Shares represented by proxies which are marked “withhold authority” with respect to the election of any one or more nominees for election as directors and proxies which are marked to deny discretionary authority on other matters will be counted for the purpose of determining the number of shares represented by proxy at the meeting. Such proxies will thus have the same effect as if the shares represented thereby were voted against such nominee or nominees or against such other matters. If a broker indicates on a proxy that the broker does not have discretionary authority as to certain shares to vote on a particular matter, those shares will not be considered as present and entitled to vote with respect to that matter.    10    In the election for directors every shareholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares owned by him or her for as many persons as there are directors to be elected and for whose election he or she has a right to vote, or, upon 48 hours notice given under West Virginia law, to cumulate his or her votes by giving one candidate as many votes as the number of such directors multiplied by the number of his or her shares shall equal, or by distributing such votes on the same principal among any number of such candidates. Such rights may be exercised by a clear indication of the shareholder’s intent on the form of proxy. Under applicable law, there are no dissenter’s rights of appraisal as to the election of directors.  VII. Independent Auditors  S.R. Snodgrass, A.C. were the auditors for the year ended December 31, 2005. Upon the recommendation of the Audit Committee, the Board of Directors has reappointed them as the Company’s independent registered accounting firm for the year ending December 31, 2006. Shareholder ratification of this selection is not required. A representative of S.R. Snodgrass, A.C. will be present at the meeting with the opportunity to make a statement and/or to respond to appropriate questions from shareholders.  S.R. Snodgrass, A.C. advised the Company that no member of that accounting firm has any direct or indirect material interest in the Company or its subsidiary. The following fees were paid by the Company and the bank to S.R. Snodgrass, A.C.:                      2005    2004    2003   Audit Fees (1)    $ 54,000.00    $ 48,000.00    $ 41,000.00   Audit-Related Fees    $ .00    $ .00    $ .00   Tax Fees (2)    $ 6,500.00    $ 5,600.00    $ 5,700.00   All Other Fees (3)    $ 0.00    $ 2,700.00    $ 2,500.00    (1) Audit fees consist of fees for professional service rendered for the audit of the consolidated financial statements and review of financial statements included in the Company’s quarterly reports.    (2) Tax fees consist of fees for the preparation of original and amended federal and state income tax returns and franchise tax returns.    (3) Other service consist of fees for consulting on various accounting matters.  The audit committee has considered whether S.R. Snodgrass, A.C., has maintained its independence during the fiscal year ended December 31, 2005. The audit committee charter requires that the audit committee pre-approve all audit and non-audit services to be provided to the Company by the independent accountants; provided, however, that the audit committee may specifically authorize its chairman to pre-approve the provision of any non-audit service to the Company. Further, the foregoing pre-approval policies may be waived, with respect to the provision of any non-audit services consistent with the exceptions for federal securities law. All of the services described above for which S.R. Snodgrass, A.C. billed the Company for the fiscal year ended December 31, 2005, were pre-approved by the Company’s audit committee. For the fiscal year ended December 31, 2005, the Company’s audit committee did not waive the pre-approval requirement of any non-audit services to be provided to the Company by S.R. Snodgrass, A.C.  VIII. Shareholder Proposals  Proposals of shareholders intended to be presented at the 2007 Annual Meeting scheduled to be held on April 10, 2007 must be received by the Company by November 17, 2006 for inclusion in the Company’s proxy statement and proxy relating to that meeting. Upon receipt of any such proposal, the Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with regulations governing the solicitation of proxies.  In order for a shareholder to nominate a candidate for director, under the Company’s Bylaws nominations must be made in writing and shall be delivered or mailed to the president of the Company or to the chairman of the Board not less than 14 days nor more than 40 days prior to any meeting of shareholders called for the election of directors, provided, however, that if less than 21 days’ notice of the meeting is given to shareholders, such nominations shall be mailed or delivered to the president of the Company or the chairman of the Board not later than the close of business on the seventh day following the day on which the notice of the meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of stock of the Company that will be voted by him or her for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of stock of the Company owned by the notifying shareholder. Nominations not made in accordance with such procedure may, in the discretion of the presiding officer, be disregarded, and upon the presiding officer’s instructions, the vote teller shall disregard all votes cast for each such nominee.    11    In order for a shareholder to bring other business before a shareholder meeting, timely notice must be received by the Company. Such notice must include a description of the proposed business, the reasons therefore, and other specified matters. These requirements are separate from and in addition to the requirements a shareholder must meet to have a proposal included in the Company’s proxy statement.  In each case the notice must be given to the Secretary of the Company, whose address is 1701 Warwood Avenue, Wheeling, West Virginia 26003. Any shareholder desiring a copy of the Company’s Bylaws will be furnished one without charge upon written request to the Secretary.  IX. Shareholder Communications with the Board  Any shareholder desiring to contact the Board of Directors or any individual director serving on the Board may do so by written communication mailed to: Board of Directors (Attention: (name of director(s), as applicable), care of Stephanie A. LaFlam, Corporate Secretary, First West Virginia Bancorp, Inc., 1701 Warwood Avenue, Wheeling, West Virginia 26003. Any proper communication so received will be processed by the Corporate Secretary as agent for the Board. Unless, in the judgment of the Corporate Secretary, the matter is not intended or appropriate for the Board (and subject to any applicable regulatory requirements), the Corporate Secretary will prepare a summary of the communication for prompt delivery to each member of the Board or, as appropriate, to the member(s) of the Board named in the communication. Any director may request the Corporate Secretary to produce for his or her review the original of the shareholder communication.  X. Legal Proceedings  The Company is unaware of any litigation other than ordinary routine litigation incident to the business of the Company, to which it or its subsidiary is a party or of which any of their property is the subject.  XI. Other Matters  The Company knows of no other matters to come before the meeting. If any other matters properly come before the meeting, the proxies solicited hereby will be voted on such matters in accordance with the judgment of the persons voting such proxies.    12    Appendix  FIRST WEST VIRGINIA BANCORP, INC.  AUDIT COMMITTEE CHARTER      I. PURPOSE  The primary function of the Audit Committee of First West Virginia Bancorp, Inc. (hereinafter the “Company”) is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to the shareholders, any governmental body, and others; the Company’s systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Company’s auditing, accounting and financial reporting processes generally. Consistent with this function, the Audit committee should encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures, and practices at all levels.      II. RESPONSIBILITIES  The responsibilities of the Audit Committee are to:        1. Review and update this Charter annually, reassess the adequacy of the charter, and recommend any proposed changes to the Board of Directors as conditions may dictate.        2. Appoint the independent auditors to be engaged by the Company, establish the audit fees of the independent auditors, pre-approve any non-audit services provided by the independent auditors, including tax services, before the services are rendered.        3. Review and evaluate the performance of the independent auditors and review with the Board of Directors any proposed discharge of the independent auditors.        4. Ascertain that the lead audit partner from the independent auditor’s accounting firm, serves in that capacity for no more than five fiscal years of the Company. In addition, ascertain that any partner, other that the lead partner serves no more than seven years at the partner level on the Company’s audit.        5. Review and concur in the appointment, replacement, reassignment, or dismissal of the internal auditor and director of internal audit.        6. Inquire of management, the director of internal audit, and the independent auditors about significant risks or exposures facing the Company; assess the steps management has taken or proposes to take to minimize such risks to the Company; and periodically reviews compliance with such steps.        7. Consider, with management the rationale for employing audit firms other than the principal independent accountants.        8. Review with the independent auditor, the chief financial officer, and the director of internal audit, the audit scope and plan of the internal auditors and the independent auditors. Address the coordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of audit resources.        9. Review with the independent auditors:        a. All critical accounting policies and practices used by the Company.        b. All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management of the Company, the ramifications of each alternative, and the treatment preferred by the Company.        10. Review with the independent accountants and the director of internal audit:        a. The adequacy of the company’s internal controls including computerized information system controls and security.        b. Any related significant findings and recommendations of the independent auditors and internal auditor services together with management’s responses thereto.    i        11. Review with management and the independent auditors:        a. The company’s annual financial statements and related footnotes.        b. The independent auditors’ audit of the financial statements and their report thereon.        c. The independent auditors’ judgements about the quality, not just the acceptability, of the company’s accounting principles as applied in its financial reporting.        d. Any significant changes required in the independent auditors’ audit plan.        e. Any serious difficulties or disputes with management encountered during the audit.        f. Matters required to be discussed by Statement on Auditing Standards (SAS) No. 61, Communication With Audit Committees (AICPA, Professional Standards, vol. 1 AU sec. 380), as amended, related to the conduct of the audit.        12. Review with management and the director of internal audit:        a. Significant findings during the year and management’s responses thereto.        b. Any difficulties encountered in the course of their audits, including any restrictions on the scope of their work or access to required information.        c. Any changes required in the planned scope of their audit plan.        d. The internal audit department’s outsourced contract amount and outsourced staff qualifications.        e. The internal audit department charter.        f. Internal auditing’s compliance with the Internal Auditor’s (ILA’s) Standards for the professional Practice of Internal Auditing (Standards).        13. Review with management, the independent auditors, and the director of internal audit, filings with the SEC or other regulators, and other published documents containing the Company’s financial statements and consider whether the information contained in these documents is consistent with the information contained in the financial statements.        14. Review with management, the independent auditors, and the director of internal audit, the interim financial report before it is filed with the Securities and Exchange Commission (“SEC”) or other regulators. The Chairman of the Audit Committee may represent the entire Committee for purposes of this review.        15. Review with management the policies and procedures with respect to officers’ expense accounts and perquisites, including their use of corporate assets, and consider the results of any review of these areas by the internal auditor or the independent accountants.        16. Review legal and regulatory matters that may have a material impact on the financial statements, related company compliance policies, and programs and reports received from regulators.        17. Meet with the director of internal audit, the independent accountants, and management in separate executive sessions to discuss any matters that the Committee or these groups believe should be discussed privately with the Audit Committee.        18. Report Audit Committee actions to the Board of Directors with such recommendations as the Committee may deem appropriate.        19. Oversee the preparation of an annual report of the Audit Committee as required by the rules of the SEC. When required by SEC rules, include in the annual Proxy Statement for the Company a report of the Committee in accordance with the Proxy Rules promulgated by the SEC.        20. The Audit Committee shall have the power to conduct or authorize investigations into any matters within the Committee’s scope of responsibilities. The Audit Committee shall be empowered to retain independent counsel, accountants, or others to assist it in the conduct of any investigation.    ii        21. The Audit Committee shall meet at least four times per year, and each time the company proposes to issue a press release with its quarterly or annual earnings information. These meetings may be combined with regularly scheduled meetings, or more frequently as circumstances require. The audit committee may ask members of management or others to attend the meetings and provide pertinent information as necessary.        22. The Audit Committee shall maintain minutes or other records of its meetings and activities.        23. The Audit Committee will perform such other functions as assigned by law, the Company’s Charter or Bylaws, or the Board of Directors.        24. Conduct executive sessions with the outside auditors, CEO (Chief Executive Officer), CFO (Chief Financial Officer), director of internal audit, general counsel, or anyone else as desired by the committee.        25. Inquire of the CEO and CFO regarding the “quality of earnings” of the company from a subjective as well as an objective standpoint.        26. Review with management and the independent auditor the effect of any regulatory and accounting initiatives, as well as off-balance-sheet structures, if any.        27. Review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.        28. Periodically review the Company’s code of conduct to ensure that it is adequate and up-to-date. Review with the director of internal audit and the Company’s general counsel the results of their review of the monitoring of compliance with the Company’s code of conduct.        29. Review the procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters that may be submitted by any part internal or external to the organization. Review any complaints that might have been received, current status, and resolution if one has been reached.        30. Review procedures for the confidential, anonymous submission by employees of the organization of concerns regarding questionable accounting or auditing matters. Review any submissions that have been received, the current status, and the resolution if one has been reached.        31. The Audit Committee will evaluate the independent auditors and internal auditors.        32. The Audit Committee will review its effectiveness.        33. Create an agenda for the ensuing year or review and approve the agenda submitted by the Director of internal audit.      III. COMPOSITION  The Audit Committee shall be comprised of three or more directors as determined by the Board. Each member of the Audit Committee shall be a member of the board of directors, in good standing , and shall be independent in order to serve on this committee.  At least one member of the Audit Committee shall be designated as a financial expert. The financial expert shall have an understanding of generally accepted accounting principles (GAAP) and financial statements; ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities; an understanding of internal controls and procedures for financial reporting; and an understanding of audit committee functions. All other members of the Audit Committee shall have a working familiarity with basic finance and accounting practices.  The members of the Audit Committee shall be elected by the Board of Directors at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified.    iii      GRAPHIC 12 g54493image002.jpg GRAPHIC  begin 644 g54493image002.jpg M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````9```_^X`#D%D M;V)E`&3``````?_;`(0``0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$! 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