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EXHIBIT 13.1
Annual Report to Shareholders
42
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(FIRST WEST VIRGINIA BANCORP LETTERHEAD)
P.O. Box 6671
Wheeling, WV 26003
Dear Shareholders,
I am pleased to present to you the 2000 Annual Report of First West
Virginia Bancorp, Inc. Consolidated net income for 2000 was $2,325,906 or $1.51
per share, with a return on average assets of 1.14% and a return on average
equity of 13.33%. Total assets for the Holding Company increased 9.9% over the
prior year to $207,893,209 at December 31, 2000 as compared to $189,172,634 at
December 31, 1999. Total stockholders' equity increased to $18,225,100, an
increase of 13.5% over the $16,055,472 reported in 1999. The book value per
share was $11.85 at December 31, 2000 as compared to $10.44 a year earlier.
During 2000, the Board of Directors declared and paid cash dividends of
$.64 per share compared to $.54 per share during 1999, which represents an
increase of 18.5% over the prior year. Additionally, on October 12, 2000 the
Board of Directors declared a 2% common stock dividend payable to shareholders
of record as of December 1, 2000.
In our continued commitment to grow and develop new market areas,
Progressive Bank, N.A., a subsidiary bank of First West Virginia Bancorp, Inc.,
purchased from United National Bank the building and land of the Moundsville,
West Virginia office, as well as the building, land and deposits of the New
Martinsville, West Virginia office. Total deposits of the New Martinsville
office are approximately $9.5 million. Both of these offices are scheduled to
open during the first quarter of 2001. The acquisition of these two offices will
add approximately $11.3 million in assets to the Holding Company. The Board of
Directors has also approved plans for a new branch office in the Bethlehem
section of Wheeling, West Virginia scheduled to open sometime in the third
quarter of 2001. Investments into new market areas and communities remain a
vital part of our sales, service and quality initiative.
During the second quarter of 2000, the Board of Directors of First West
Virginia Bancorp, Inc. elected S.J. "Dick" Dlesk to serve as its Vice Chairman
of the Board. Mr. Dlesk has served the corporation as a board member of First
West Virginia Bancorp, Inc. for the past eleven years. He has also been a member
of the Board of Directors of Progressive Bank, N.A. since 1987. Mr. Dlesk, a
local real estate developer and builder, is President of Dlesk Realty &
Investments. We look forward to his experience, support, and dedication to the
corporation.
I would also like to take this opportunity to welcome Nada E. Beneke
and Robert B. Hunnell, Jr. as new directors to the Progressive Bank, N.A. Board
of Directors. Ms. Beneke has over ten years experience as a Registered
Sanitarian with the Ohio County, Wheeling, West Virginia Health Department. Mr.
Hunnell currently serves as President of Hunnell & Associates and Auto Choice in
Moundsville, West Virginia. We are pleased to have them both as directors at the
subsidiary bank.
The history of First West Virginia Bancorp, Inc. has been built on a
philosophy of safety and soundness, service and commitment to our customers and
strategic growth. This approach has brought success to the Corporation and will
continue to lead our community banks in the years ahead.
Upon completion of my first year as President and Chief Executive
Officer of your Company, I would like to express my sincere gratitude to our
loyal customers and shareholders, as well as directors, officers and employees
for their ongoing support. As always, your comments and suggestions are
appreciated.
Sincerely,
/s/ Charles K. Graham
Charles K. Graham
President and Chief Executive Officer
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Table One
SELECTED FINANCIAL DATA
(In thousands, except per share data)
- --------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Years ended
December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 14,869 $ 13,207 $ 12,452 $ 11,507 $ 10,067
Total interest expense 7,155 5,602 5,324 4,745 3,925
Net interest income 7,714 7,605 7,128 6,762 6,142
Provision for loan losses 436 348 256 131 71
Total other income 880 1,073 787 639 568
Total other expenses 4,816 4,740 4,674 4,377 4,182
Income before income taxes 3,341 3,590 2,985 2,893 2,457
Net income 2,326 2,450 2,033 1,931 1,644
PER SHARE DATA (1)
Net income $ 1.51 $ 1.59 $ 1.32 $ 1.25 $1.07
Cash dividends declared .64 .54 .48 .43 .38
Book value per share 11.85 10.44 10.05 9.18 8.22
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $112,579 $105,775 $ 99,345 $ 86,609 $ 74,469
Investment securities 70,250 60,405 48,543 51,754 48,557
Deposits - Interest Bearing 155,172 141,768 127,520 120,589 112,768
Stockholders' equity 17,448 16,087 14,697 13,400 12,186
Total Assets 203,529 183,436 164,630 153,290 137,810
BALANCE SHEET
Investments $ 72,945 $ 60,095 $ 54,735 $ 45,444 $ 50,440
Loans 114,053 110,489 103,555 95,374 80,417
Other Assets 20,895 18,589 13,105 15,325 13,689
-------- --------- -------- -------- --------
Total Assets $207,893 $189,173 $171,395 $156,143 $144,546
======== ======== ======== ======== ========
Deposits $173,669 $161,558 $147,785 $137,045 $125,271
Federal funds purchased and
Repurchase Agreements 14,526 10,274 6,994 4,075 5,931
Other Liabilities 1,473 1,285 1,155 894 695
Shareholders' Equity 18,225 16,056 15,461 14,129 12,649
-------- -------- ---------- -------- --------
Total Liabilities and
Shareholders' Equity $207,893 $189,173 $171,395 $156,143 $144,546
======== ======== ======== ======== ========
SELECTED RATIOS
Return on average assets 1.14% 1.34% 1.23% 1.26% 1.19%
Return on average equity 13.33% 15.23% 13.83% 14.41% 13.49%
Average equity to average assets 8.57% 8.77% 8.93% 8.74% 8.84%
Dividend payout ratio (1) 42.38% 33.96% 36.36% 34.40% 35.51%
Loan to Deposit ratio 65.67% 68.39% 70.07% 69.59% 64.19%
(1) Adjusted for the 2 percent common stock dividend to stockholders of record
as of December 1, 2000, a 6 for 5 stock split in the effect of a twenty
(20) percent common stock dividend, declared October 12, 1999 to
shareholders of record as of November 1, 1999, a 4 percent common stock
dividend to stockholders of record as of October 1, 1998, a 3 for 2 stock
split in the effect of a fifty (50) percent common stock dividend to
shareholders of record as of October 1, 1997, a 4 percent common stock
dividend to stockholders of record as of December 2, 1996.
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First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
---------------------------------------------------------------
First West Virginia Bancorp, Inc., a West Virginia corporation headquartered in
Wheeling, West Virginia commenced operations in July 1973 and has two
wholly-owned subsidiaries: Progressive Bank, N.A., which operates in Wheeling,
Wellsburg, and Moundsville, West Virginia and Bellaire, Ohio; and Progressive
Bank, N.A.-Buckhannon, which operates in Buckhannon and Weston, West Virginia.
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 Holding Company), and its subsidiaries for the years ended December
31, 2000, 1999 and 1998. This discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and the Notes, thereto.
OVERVIEW
The Holding Company reported net income of $2,325,906 or $1.51 per share for the
year ended December 31, 2000, compared to $2,450,381 or $1.59 per share for the
year ended December 31, 1999. The decrease in net income during 2000 over 1999
was primarily attributable to a decrease in noninterest income and increases in
noninterest expenses and the provision for loan losses, partially offset by an
increase in net interest income. The decrease in noninterest income during 2000
results primarily from a non-recurring gain of $301,862 on the sale of building
and land by the Holding Company in 1999.
Operational earnings were improved with net interest income increasing $109,155
or 1.4% during 2000 as compared to the same period in 1999. The increase in net
interest income primarily results from an increase in the investment securities
portfolio combined with the growth in the loan portfolio, which were offset by
the increase in interest expense on savings and time deposits.
The Holding Company ended the year 2000 with total assets of $207,893,209 an
increase of 9.9% over the $189,172,634 reported in 1999. Loans net of reserves
increased in 2000 by $3,410,247 to $112,750,959, as compared to $109,340,712
reported at December 31, 1999. Total deposits increased in 2000 by $12,110,646,
from $161,557,932 at December 31, 1999 to $173,668,578 at December 31, 2000,
primarily due to the increase in savings deposits and time deposits.
The allowance for loan losses amounted to $1,302,044 at December 31, 2000 or
1.1% of total loans, compared to $1,147,720 or 1.0% of total loans at December
31, 1999. Non-performing assets were $2,283,000 at December 31, 2000, as
compared to $892,000 at December 31, 1999.
The Board of Directors declared and paid cash dividends of $.64 per share during
2000 as compared to $.54 in 1999. On October 12, 2000, the Board of Directors
also declared a two percent (2%) common stock dividend to its shareholders of
record as of December 1, 2000. Accordingly, 29,917 shares of common stock were
issued on December 15, 2000.
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.
EARNINGS ANALYSIS
Net Interest Income
Net interest income, which is the difference between interest earned on loans
and investments and interest paid on deposits and other liabilities, is the
primary source of earnings for the Holding Company. Changes in the volume and
mix of earning assets and interest bearing liabilities combined with changes in
market rates of interest greatly effect net interest income. Tables Two and
Three analyze the changes in net interest income for the three years ended
December 31, 2000, 1999, and 1998.
Net interest income was $7,713,874 in 2000, an increase of $109,155 or 1.4%,
from 1999, following an increase in 1999 of $476,447 or 6.7% from 1998. The
increase in net interest income for 2000 was primarily attributable to the
increase in the investment securities and the growth in the loan portfolio
offset in part by the increase in interest expense on savings and time deposits.
The increase in the average volume of investment securities resulted in the
overall increase in interest earned on investment securities during 2000.
Interest income on investment securities during 2000 increased $772,583 or 22.3%
over 1999. The increase in the average volume of investment securities primarily
contributed to the increase in net interest income during 2000. The average
volume of investment securities increased $9,845,000 in 2000. During 1999, the
increase in the average volume of investment securities resulted in the overall
increase in interest earned on investment securities. Interest income on
investment securities during 1999 increased $556,580 or 19.2% from 1998. The
average yield on investment securities increased .30%, from 5.73% in 1999 to
6.03% in 2000 and decreased .25% from 5.98% in 1998 to 5.73% in 1999.
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Table Two
Average Balance Sheets and Interest Rate Analysis (in thousands)
The following table presents an average balance sheet, interest earned on
interest bearing assets, interest paid on interest bearing liabilities, average
interest rates and interest differentials for the years ended December 31, 2000,
1999, and 1998. Average balance sheet information as of December 31, 2000, 1999,
and 1998 was compiled using the daily average balance sheet. Loan fees and
unearned discounts were included in income for average rate calculation
purposes. Non-accrual loans were included in the average balance computations;
however, no interest was included in income subsequent to the non-accrual status
classification.
December 31, 2000 December 31, 1999 December 31, 1998
----------------------------- ------------------------------ ----------------------------
Average Average Average Average Average Average
Volume Interest Rate Volume Interest Rate Volume Interest Rate
-------- -------- ------- ------- -------- -------- -------- -------- -------
(expressed in thousands)
ASSETS:
Investment securities:
U.S. Treasury and other U. S.
Government agencies $ 54,626 $ 3,453 6.32% $ 46,283 $ 2,799 6.05% $ 38,387 $ 2,399 6.25%
Obligations of states and
political subdivisions 12,431 576 4.63% 11,546 507 4.39% 8,155 382 4.68%
Other securities 3,193 209 6.55% 2,576 156 6.06% 2,001 124 6.20%
------- ------- ------- ------- ------- ------- -------- ------- -------
Total Investment securities: 70,250 4,238 6.03% 60,405 3,462 5.73% 48,543 2,905 5.98%
Interest bearing deposits 6,375 398 6.24% 3,861 195 5.05% 2,607 138 5.29%
Federal funds sold 6,041 380 6.29% 4,923 244 4.96% 6,085 330 5.42%
Loans, net of unearned income 112,579 9,853 8.75% 105,775 9,306 8.80% 99,345 9,078 9.14%
-------- ------- ------- --------- -------- ------- -------- ------- ------
Total earning assets 195,245 14,869 7.62% 174,964 13,207 7.55% 156,580 12,451 7.95%
Cash and due from banks 4,602 4,628 4,369
Bank premises and equipment 2,777 2,994 3,056
Other assets 2,148 2,005 1,785
Allowance for possible loan losses (1,243) (1,155) (1,160)
-------- --------- ---------
Total Assets $203,529 $183,436 $164,630
======== ======== =========
LIABILITIES
Certificates of deposit $ 73,128 $ 4,065 5.56% $ 67,309 $ 3,535 5.25% $ 60,277 $ 3,356 5.57%
Savings deposits 56,940 2,080 3.65% 48,752 1,368 2.81% 43,418 1,270 2.93%
Interest bearing demand deposits 25,104 374 1.49% 25,707 406 1.58% 23,825 471 1.98%
Federal funds purchased and
Repurchase agreements 14,067 637 4.53% 9,012 293 3.25% 6,600 227 3.44%
--------- ------- ------ -------- -------- ------ -------- ------- ------
Total interest bearing liabilities 169,239 7,156 4.23% 150,780 5,602 3.72% 134,120 5,324 3.97%
Demand deposits 15,301 15,241 14,720
Other liabilities 1,541 1,328 1,093
--------- -------- ---------
Total Liabilities 186,081 167,349 149,933
STOCKHOLDERS' EQUITY 17,448 16,087 14,697
-------- -------- ---------
Total Liabilities
and Stockholders' Equity $203,529 $183,436 $164,630
======== ======== ========
Net yield on earning assets $ 7,713 3.95% $ 7,605 4.35% $ 7,127 4.55%
======= ====== ======= ===== ======= ======
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 2000, 1999, and 1998, respectively.
The effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 12,431 $ 925 7.44% $ 11,546 $ 845 7.32% $ 8,155 $ 637 7.81%
Loans 112,579 10,012 8.89% 105,775 9,434 8.92% 99,345 9,215 9.28%
========= ======= ===== ========= ======= ====== ======== ======= ======
Total earning assets $ 195,245 $15,377 7.88% $ 174,964 $13,673 7.81% $156,580 $12,843 8.20%
========= ======= ===== ========= ======= ====== ======== ======= ======
Taxable equivalent net yield on
earning assets $ 8,221 4.21% $ 8,071 4.61% $ 7,519 4.80%
======= ===== ======= ====== ======= ======
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Table Three
Rate Volume Analysis of Changes in Interest Income and Expense
(in thousands)
The effect on interest income and interest expense for the years ended December
31, 2000, 1999, and 1998 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.
2000 Compared to 1999 1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in: Due to Change in:
------------------------------ ------------------------------ ----------------------------
Net Net Net
Average Increase Average increase Average increase
Volume Rate (decrease) Volume Rate (decrease) Volume Rate (decrease)
------- ---- --------- ------- ---- ---------- ------- ---- ----------
(expressed in thousands)
INTEREST INCOME FROM:
- ---------------------
U.S. Treasury and other
U. S. Government agencies $ 505 $ 149 $ 654 $ 493 $ (93) $ 400 $ (429) $ (33) $ (462)
Obligations of states and
political subdivisions 39 30 69 159 (34) 125 130 (12) 118
Other securities 37 16 53 36 (4) 32 53 2 55
Interest bearing deposits 127 76 203 66 (8) 58 109 1 110
Federal funds sold 55 81 136 (63) (24) (87) (26) (1) (27)
Loans, net of unearned income 599 (52) 547 588 (360) 228 1,165 (15) 1,150
------ ----- ------- ------- ----- ----- ------- ----- ------
Total interest earned 1,362 300 1,662 1,279 (523) 756 1,002 (58) 944
INTEREST EXPENSE ON:
- --------------------
Time deposits 305 225 530 392 (213) 179 273 138 411
Savings deposits 230 482 712 156 (58) 98 54 114 168
Interest bearing demand deposits (9) (23) (32) 37 (102) (65) (5) (33) (38)
Federal funds purchased and
Repurchase agreements 164 180 344 83 (17) 66 55 (17) 38
------ ----- ------- ------- ----- ----- ------- ----- ------
Total interest paid 690 864 1,554 668 (390) 278 377 202 579
------ ----- ------- ------- ----- ----- ------- ----- ------
Net interest differential $ 672 $(564) $ 108 $ 611 $(133) $ 478 $ 625 $(260) $ 365
====== ===== ======= ======= ===== ===== ======= ===== ======
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 2000, 1999, 1998, and 1997, respectively.
Obligations of states and political subdivisions:
Investment securities $ 65 $ 15 $ 80 $ 265 $ (57) $ 208 $ 216 $ (19) $ 197
Loans 607 (29) 578 597 (378) 219 1,179 18 1,197
====== ===== ======= ======= ===== ===== ====== ===== ======
Total interest earned $1,396 $ 308 $ 1,704 $ 1,394 $(564) $ 830 $1,102 $ (32) $1,070
====== ===== ======= ======= ===== ===== ====== ===== ======
Net interest differential $ 706 $(556) $ 150 $ 726 $(174) $ 552 $ 725 $(234) $ 491
====== ===== ======= ======= ===== ===== ====== ===== ======
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Net Interest Income - Continued
Interest and fees on loans and lease financing increased $547,098 or 5.9% from
1999 to 2000 and $227,345 or 2.5% from 1998 to 1999. The increased interest
income on loans and lease financing for both years resulted from increases in
the average loan volume of $6,804,000 in 2000 and $6,430,000 in 1999. Increases
in residential real estate loans primarily contributed to the additional growth
in the loan portfolio in 2000. During 1999, increases in residential real estate
and commercial loans primarily contributed to the loan growth. The average yield
on loans continued to decline in 2000, decreasing from 9.14% in 1998 to 8.80% in
1999 to 8.75% in 2000.
Interest expense in 2000 increased $1,553,565 or 27.7% from 1999, compared to an
increase in 1999 of $278,121 or 5.2% from 1998. The increases in interest
expense for both 2000 and 1999 were primarily the result of deposit growth.
During 2000, the average volume of interest bearing deposits increased
$13,404,000 or 9.5% as compared to 1999, and increased $14,248,000 or 11.2% in
1999 as compared to 1998. Average volume increases of interest bearing deposits
during 2000 and 1999 were primarily the result of the growth in time deposits
and savings deposits.
The average yield paid on interest bearing liabilities increased .51%, from
3.72% in 1999 to 4.23% in 2000, and followed a decrease of .25%, from 3.97% in
1998 to 3.72% in 1999. The increase in the average yield on interest bearing
liabilities during 2000 was primarily the result of an increase in the interest
rates paid combined with the increase in the average volume on savings deposits
and time deposits. The decrease in the average yield on interest bearing
liabilities during 1999 was primarily the result of a decrease in the interest
rates paid on time deposits and interest bearing demand deposits.
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 4.21% for
2000, as compared to 4.61% and 4.80% earned during 1999 and 1998, respectively.
Noninterest Income
Service charges and other fees represent the major component of noninterest
income. These charges are earned from assessments made on checking and savings
accounts. Service charges increased $26,656 in 2000, up 5.2%, from 1999, as
compared to an increase of 3.7% from 1998 to 1999. The increase in service
charges in both 2000 and 1999 was primarily due to an increase in the number of
charges assessed on deposit accounts.
During 1999, noninterest income included a pre-taxable gain of $301,862 on the
sale of the building and land by the Holding Company.
Sales of investment securities by the subsidiary banks are generally limited to
the needs established under the liquidity policies. During 2000, the Holding
Company recorded securities gains of $37,944 and securities losses of $14,508
and were attributable to sales of securities available for sale. In 1999, the
subsidiary banks accounted for securities gains of $14,721 and securities losses
of $13,086 and were attributable to sales of securities available for sale.
Additionally, in 1999 the Holding Company accounted for securities gains of
$11,526 and securities losses of $662 and were attributable to sales of
marketable equity securities. During 1998, the Holding Company accounted for
securities gains of $2,786 and securities losses of $1,608 and were attributable
to sales of marketable equity securities. Other operating income represents fees
from safe deposit box rentals, sales of checkbooks, sales of cashiers' checks
and money orders, utility collections, ATM charges and card fees, home equity
credit line fees, credit life commissions, credit card fees and commissions and
various other charges and fees related to normal customer banking relationships.
In 2000, other operating income was $321,274, an increase of $70,966 or 28.3%
over 1999, and follows a decrease of $44,038, or 15.0%, over 1998. The increase
in other operating income during 2000 results primarily from an increase in
other credit card income and the increase in credit life commissions. Other
operating income decreased during 1999 primarily from the decrease in other
credit card income and a loss of lease income resulting from the sale of the
building and land by the holding company.
Non-Interest Expense
Salary and employee benefits are the largest component of noninterest expense.
Salary and employee benefits increased $105,695 or 4.3% in 2000 as compared to
the same period in 1999. During 1999, salary and employee benefits increased
$19,055 or .8% over 1998. The increase in salary and employee benefits in both
2000 and 1999 was primarily due to normal annual merit adjustments.
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Table Four
Investment Portfolio
(in thousands)
The maturity distribution using book value including accretion of discounts and
amortization of premiums (expressed in thousands) and approximate yield of
investment securities at December 31, 2000 and December 31, 1999 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.
December 31, 2000 December 31, 1999
--------------------------------------------- ----------------------------------------
Securities Securities Securities Securities
Held to Maturity Available for Sale Held to Maturity Available for Sale
-------------------- -------------------- -------------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury and other U.S.
Government Agencies
Within One Year $ -- --% $ 8,843 6.13% $ -- --% $ 4,504 5.25%
After One But
Within Five Years -- -- 24,422 6.20 -- -- 18,750 6.16
After Five But
Within Ten Years -- -- 9,782 6.57 -- -- 17,446 6.78
After Ten Years -- -- -- -- -- -- -- --
------- ---- ------- ---- ------- ---- ------- ----
-- -- 43,047 6.27 -- -- 40,700 6.33
States & Political Subdivisions
Within One Year 2,008 6.74 -- -- 1,020 6.40 -- --
After One But
Within Five Years 3,745 6.28 985 7.39 3,626 6.67 -- --
After Five But
Within Ten Years 5,029 6.52 1,066 6.93 5,467 6.64 507 7.59
After Ten Years 96 7.82 -- -- 533 6.81 -- --
------- ---- ------- ---- ------- ---- ------ ----
10,878 6.49 2,051 7.15 10,646 6.64 507 7.59
Corporate Debt Securities
Within One Year -- -- 100 8.44 -- -- -- --
After One But
Within Five Years -- -- 492 7.36 -- -- 102 8.42
------- ---- ------- ---- ------- ---- ------- ----
-- -- 592 7.54 -- -- 102 8.42
Mortgage-Backed Securities -- -- 15,286 7.01 -- -- 7,049 6.44
Equity Securities -- -- 1,091 5.47 -- -- 1,091 5.29
------- ---- ------- ---- ------- ---- ------- ----
Total $10,878 6.49% $62,067 6.48% $10,646 6.64% $49,449 6.34%
======= ==== ======= ==== ======= ==== ======= ====
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Non-Interest Expense Continued
The major components of other operating expenses include: stationery and
supplies, directors' fees, service expense, postage and transportation, other
taxes, advertising, and regulatory assessment and deposit insurance. Other
operating expenses decreased $32,940 or 2.1% in 2000 over 1999 and increased
$74,601 or 5.1% in 1999. The decrease in other operating expenses during 2000
was primarily due to the decrease in other expenses, stationery and supplies
expense, and service expenses partially offset by the increase in advertising
expense, regulatory assessments, and directors fees. In 1999, the increase in
other operating expenses was primarily due to the increase in service expense,
advertising and directors' fees offset in part by a decrease in stationery and
supplies expense.
Income Taxes
Income tax expense for the period ended December 31, 2000 was $1,015,283, a
decrease of $124,233 over 1999. The decrease was primarily due to the decrease
in pre-taxable income of $248,708 in 2000 over 1999. Components of the income
tax expense for December 31, 2000 were $867,442 for federal taxes and $147,841
for West Virginia corporate net income taxes. Income tax expense for the period
ended December 31, 1999 increased by $187,713 over 1998.
For federal income tax purposes, tax-exempt income is based on qualified state,
county, and municipal bonds and loans. Tax-exempt income was $761,821 in 2000;
$698,249 in 1999; and $586,837 in 1998. 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
$1,631,000 in 2000; $1,592,000 in 1999; and $1,211,000 in 1998.
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, 2000,
1999 and 1998. Additional information regarding income taxes is contained in
Note 7 to the Consolidated financial statements.
Balance Sheet Analysis
Investments
Investment securities increased $12,849,357 or 21.4% from $60,095,424 at
December 31, 1999, to $72,944,781 at December 31, 2000 and followed an increase
of $5,360,024 or 9.8% from $54,735,400 at December 31, 1998 to $60,095,424 at
December 31, 1999. The increases in investment securities at December 31, 2000
and 1999 were primarily the result of increased deposit growth.
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 84.3% of total securities at December 31, 2000, as
compared to 81.4% at December 31, 1999. 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 Holding 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 market 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 market value increased $12,617,303 or 25.5% from 1999, and
represented 85% of the investment portfolio at December 31, 2000. The increase
in the available for sale securities was primarily due to the purchase of
mortgage backed securities. Investment securities held to maturity are
securities purchased with the intent and ability to hold until their maturity.
Securities classified as held to maturity are carried at cost, adjusted for
amortization of premiums and accretion of discounts. The held to maturity
securities increased $232,054 or 2.2% from 1999 and represented 15% of the
investment portfolio as of December 31, 2000. The increase in the held to
maturity securities was primarily the result of purchases of 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 $60,128 at
December 31, 2000 and decreased by $1,380,468 at December 31, 1999. The market
value of securities classified as held to maturity was above book value by
$42,633 at December 31, 2000 and below book value by $209,270 at December 31,
1999.
50
10
- --------------------------------------------------------------------------------
Table Five
Loan Portfolio - Maturities and sensitivities of Loans to Changes in
Interest Rates
The following table presents the contractual maturities of loans other than
installment loans and residential mortgages for all banks as of December 31,
2000 and December 31, 1999 (in thousands):
December 31, 2000
---------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 746 $ 5,815 $ 7,284
Real Estate - construction 119 -- --
-------- -------- --------
Total $ 865 $ 5,815 $ 7,284
======== ======== ========
December 31, 1999
---------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 712 $ 7,564 $ 5,266
Real Estate - construction 73 -- --
-------- -------- -------
Total $ 785 $ 7,564 $ 5,266
======== ======== =======
The following table presents an analysis of fixed and variable rate loans as of
December 31, 2000 and December 31, 1999 along with the contractual maturities of
loans other than installment loans and residential mortgages (in thousands):
December 31, 2000
---------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 802 $ 4,380 $ 638
Variable Rates 63 1,435 6,646
-------- -------- -------
Total $ 865 $ 5,815 $ 7,284
======== ======== =======
December 31, 1999
---------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 586 $ 5,564 $ 1,150
Variable Rates 199 2,000 4,116
--------- -------- -------
Total $ 785 $ 7,564 $ 5,266
========= ======== =======
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51
11
- -------------------------------------------------------------------------------
Loans
Loans, net of unearned income, increased $3,564,571 or 3.2% from 1999, and
follows an increase in 1999 of $6,933,113 or 6.7% from 1998. The additional
growth in the loan portfolio during 2000 was primarily in residential real
estate loans which increased approximately $3,062,000. In 1999, the loan growth
can be attributed primarily to increases in residential real estate loans and
commercial loans which increased approximately $4,623,000 and $3,633,000,
respectively. Residential real estate loans increased primarily as a result of
new purchases and refinancing due to offering competitive mortgage rates and
local servicing. Real estate residential loans which include real estate
construction, real estate farmland, and real estate residential loans comprised
thirty-eight percent (38%) of the loan portfolio. Commercial loans which include
real estate secured by non-farm, non-residential and commercial and industrial
loans comprised thirty-seven percent (37%) of the loan portfolio. Installment
loans comprised twenty-one percent (21%) of the loan portfolio. Other loans
which include non-rated industrial development obligations, direct financing
leases and other loans comprised four percent (4%) of the loan portfolio. The
changes in the composition of the loan portfolio from 1999 to 2000 were a 2%
increase in real estate residential loans, a 1% increase in other loans, a 1%
decrease in installment loans and a 1% decrease in commercial loans. From 1998
to 1999, the changes in the composition of the loan portfolio were a 2% increase
in real estate residential loans, a 1% increase in commercial loans, a 2%
decrease in installment loans and a 1% decrease in other loans.
Non-performing assets include non-accrual loans on which the collectibility of
the full amount of interest is uncertain; loans which have been renegotiated to
provide for a reduction or deferral of interest on principal because of a
deterioration in the financial position of the borrower; loans past due ninety
days or more as to principal or interest; and other real estate owned. A
five-year summary of nonperforming assets is presented in Table Six.
Total non-performing loans were $2,283,000 at December 31, 2000 as compared with
$892,000 at December 31, 1999. The increase in non-performing loans in 2000 was
primarily due to an increase in non-accrual loans and loans past due 90 days or
more. Non-accrual loans were $1,248,000 or 1.1% of total loans outstanding as of
December 31, 2000, as compared to $573,000 or .5% at December 31, 1999. The
non-accrual loans in 2000 primarily were commercial loans which are secured by
collateral believed to have adequate values to cover the outstanding loan
balances. Loans past due 90 days or more were $904,000 or .8% of total loans
outstanding as of December 31, 2000, as compared to $319,000 or .3% at December
31, 1999. Loans past due 90 days or more at year-end were primarily commercial
real estate loans. There were no loans classified as renegotiated at December
31, 2000 and 1999. Other real estate amounted to $131,000 at December 31, 2000.
There was no other real estate owned at December 31, 1999. Management continues
to monitor the nonperforming assets to ensure against deterioration in
collateral values.
Allowance for Loan Losses
The corporation 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 allowance for loan losses represented 1.1% and 1.0% of outstanding
loans as of December 31, 2000 and 1999, respectively. Net loan charge-offs were
$282,176 in 2000, compared to $323,192 in 1999 and $350,851 in 1998. The net
loan charge-offs in 2000 were primarily installment and commercial loans. In
1999 and 1998 the net loan charge-offs were primarily in installment loans.
Personal bankruptcies have contributed to the increase in net charge-offs on
consumer type loans over the past several years.
The provision for possible loan losses was $436,500 in 2000 compared to
$348,000, and $256,000 in 1999 and 1998, respectively. Although the net loan
charge-offs decreased in 2000, the increase in non-performing assets combined
with the additional loan growth prompted the increase in the provision for loan
losses.
The corporation 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
experience as presented in Table Eight.
The Corporation has historically maintained the allowance for loan losses at a
level greater than actual charge-offs. In determining the allocation of the
allowance for possible loan losses, charge-offs for 2001 are anticipated to be
within the historical ranges. Although a subjective evaluation is determined by
management, the corporation 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 corporation's market area could result in new
estimates which could affect the corporation'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.
- --------------------------------------------------------------------------------
52
12
- -------------------------------------------------------------------------------
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 ( in thousands):
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
Past Due 90 Days or More:
Real Estate - residential $ 48 $ 66 $ 76 $ 45 $ 250
Commercial 711 11 4 70 2
Installment 145 242 188 104 48
------- ------ ------ ------ ------
$ 904 $ 319 $ 268 $ 219 $ 300
------- ------ ------ ------ ------
Non-accrual:
Real Estate - residential $ 14 $ 17 $ 106 $ 139 $ 26
Commercial 1,202 440 184 353 299
Installment 32 116 106 48 28
------- ------ ------- ------ ------
$ 1,248 $ 573 $ 396 $ 540 $ 353
------- ------ ------ ------- ------
Other Real Estate $ 131 $ -- $ -- $ 80 $ 49
------- ------ ------ ------ ------
Total non-performing assets $ 2,283 $ 892 $ 664 $ 839 $ 702
======= ====== ======= ====== ======
Total non-performing assets
to total loans and
other real estate 2.00% 0.81% 0.64% 0.88% 0.87%
Generally, all Banks recognize interest income on the accrual basis, except for
certain loans which are placed on a non-accrual status. Loans are placed on a
non-accrual status, when in the opinion of management doubt exists as to its
collectibility. In accordance with the Office of the Comptroller of the Currency
Policy, banks may not accrue interest on any loan which either the principal or
interest is past due 90 days or more unless the loan is both well secured and in
the process of collection.
The amount of interest income that would have been recognized had the loans
performed in accordance with their original terms was approximately $42,200 and
$43,000 for the periods ended December 31, 2000 and 1999, respectively.
As of December 31, 2000, there are no loans known to management other than those
previously disclosed about which management has any information about possible
credit problems of borrowers which causes management to have serious doubts as
to the borrower's ability to comply with present loan repayment terms.
- --------------------------------------------------------------------------------
53
13
- --------------------------------------------------------------------------------
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 (in thousands).
Summary of Loan Loss Experience
--------------------------------------------------------------------
December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,148 $ 1,123 $ 1,218 $ 1,160 $ 1,149
Loans Charged Off:
Real Estate - residential 20 14 65 18 35
Commercial 107 16 134 -- --
Installment 189 315 173 67 49
--------- --------- --------- --------- ---------
316 345 372 85 84
Recoveries:
Real Estate - residential -- -- 5 -- --
Commercial 5 -- -- 3 1
Installment 29 22 16 9 24
--------- --------- --------- --------- ---------
34 22 21 12 25
Net Charge-offs 282 323 351 73 59
Additions Charged to Operations 436 348 256 131 70
--------- --------- --------- --------- ---------
Balance at end of period: $ 1,302 $ 1,148 $ 1,123 $ 1,218 $ 1,160
========= ========= ========= ========= =========
Average Loans Outstanding $ 112,579 $ 105,775 $ 99,345 $ 86,609 $ 74,469
========= ========= ========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period 0.25% 0.31% 0.35% 0.08% 0.08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.14% 1.04% 1.08% 1.28% 1.44%
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.
- --------------------------------------------------------------------------------
54
14
- --------------------------------------------------------------------------------
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, 2000 ( expressed in
thousands). The allocation presented below is based on the historical average of
net charge offs per category combined with the change in loan growth and
management's review of the loan portfolio.
December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ---------------- -----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------- -------- ------- -------- ------- -------- ------ -------- ------- --------
Real estate -
residential $ 241 37.9% $ 238 36.2% $ 208 34.2% $ 202 34.6% $ 192 36.5%
Commercial 549 37.0 490 38.7 490 37.8 622 38.0 619 39.1
Installment 492 20.9 400 22.2 374 23.8 343 23.6 298 21.6
Others 20 4.2 20 2.9 20 4.2 20 3.8 20 2.8
Unallocated -- -- -- -- 31 -- 31 -- 31 --
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
Total $1,302 100.0% $1,148 100.0% $1,123 100.0% $1,218 100.0% $1,160 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ======
- --------------------------------------------------------------------------------
55
15
Deposits
A stable core deposit base is the major source of funds for Holding Company
subsidiaries. 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 corporation's need for certain
types of deposit growth. Total deposits were $173,668,578 at December 31, 2000
as compared to $161,557,932 at December 31, 1999, an increase of 7.5%, and
follows an increase of 9.3% between 1999 and 1998. The increase in total
deposits during 2000 and 1999 was primarily in savings deposits and time
deposits. Savings deposits increased by $7,071,251 or 13.4% during 2000, and
follows an increase of $7,596,879 or 16.8% in 1999. The growth in savings
deposits was mainly due to the increase in the demand for the Progressive Gold
money market product by depositors. Time deposits grew by $3,207,025 or 4.6% in
2000, and follows an increase of $7,706,257 or 12.4% in 1999. Time deposits of
$100,000 or more increased approximately $1,853,000 at December 31, 2000 as
compared to December 31, 1999. The increase in time deposits was primarily the
result of special promotions offered by the subsidiary banks throughout 2000 and
1999. At December 31, 2000, noninterest bearing deposits comprised 10% of total
deposits and interest bearing deposits which include NOW, money market, savings
and time deposits comprised 90% of total deposits. The change in the deposit mix
from December 31, 1999 to December 31, 2000 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 of
which repurchase agreements represent the largest component. Repurchase
agreements were $14,526,328 at December 31, 2000, an increase of $4,602,403 over
1999. The increase in repurchase agreements in 2000 was primarily due to an
increase in balances maintained by existing commercial customers.
Capital Resources
A strong capital base is vital to continued profitability because it promotes
depositor and investor confidence and provides a solid foundation for future
growth. Stockholders' equity increased 8.4% in 2000 entirely from current
earnings after quarterly dividends, and an increase of 5.1% resulting from the
effect of the change in the net unrealized loss on securities available for
sale. The increase in stockholders' equity in 2000 follows an increase of 10.4%
in 1999 entirely from current earnings after quarterly dividends, and a decrease
of 6.6% resulting from the effect of the change in the net unrealized loss on
securities available for sale. Stockholders' equity amounted to 8.8% and 8.5% of
total assets at the end of 2000 and 1999, respectively.
The Holding Company's primary source of funds for payment of dividends to
shareholders is from the dividends from its subsidiary banks. Earnings from
subsidiary bank operations are expected to remain adequate to fund payment of
stockholders' dividends and internal growth. In management's opinion, the
subsidiary banks have the capability to upstream sufficient dividends to meet
the cash requirements of the Holding Company. Additional information concerning
the payment of dividends by the Holding Company is discussed in Note 16 of the
Consolidated Financial Statements.
On October 12, 2000, the Holding Company declared a two percent common stock
dividend to stockholders of record on December 1, 2000. Accordingly, 29,917
shares of common stock were issued on December 15, 2000. The Holding Company
declared a 6 for 5 stock split in the form of a 20% common stock dividend on
October 12, 1999 to stockholders of record as of November 1, 1999. As a result,
251,274 shares were issued on November 18, 1999.
The Holding Company is subject to regulatory risk-based capital guidelines
administered by the Federal Reserve Board. These risk-based capital guidelines
establish minimum capital ratios of Total capital, Tier 1 Capital, and Leverage
to assess the capital adequacy of bank holding companies. Additional information
on capital amounts, ratios and minimum regulatory requirements can be found in
Note 17 of the Consolidated Financial Statements.
56
16
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 corporation's interest rate
sensitivity involves the preparation of a basic "gap" analysis of earning assets
and interest bearing liabilities as reflected in the following table. The
analysis measures the difference or the "gap" between the amount of assets and
liabilities repricing within a given time period.
This information is used to manage a corporation'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 approximately $12,953,000, which indicates the
corporation's earning assets are more than interest bearing liabilities at
December 31, 2000. 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.
Interest Rate Risk Table - December 31, 2000
(less (greater Non-
than) 3 4 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
------- ------- ------ -------- ------- -------
ASSETS:
Interest Bearing Due From Banks $ 7,491 $ $ $ $ $ 7,491
Fed Funds Sold 4,396 4,396
Investments 28,084 14,710 15,174 15,036 (59) 72,945
Loans 22,749 29,339 31,140 29,667 1,158 114,053
Other Assets 10,310 10,310
Allowance for Loan
and Lease Losses (1,302) (1,302)
-------- ------- ------- ------- -------- --------
TOTAL ASSETS: $ 62,720 $44,049 $46,314 $44,703 $ 10,107 $207,893
======== ======= ======= ======= ======== ========
NOW and Savings $ 1,164 $ 4,456 $ 6,099 $40,285 $ $ 52,004
MMDA 31,996 31,996
CD's < 100,000 9,639 20,337 22,164 3,555 55,695
CD's > 100,000 4,900 6,798 5,380 378 17,456
Demand Deposits 16,518 16,518
Other Liabilities 1,473 1,473
Repurchase Agreements 14,526 14,526
Stockholders' Equity 18,225 18,225
------- ------- ------- ------- ------- --------
TOTAL LIABILITIES
AND CAPITAL: $62,225 $31,591 $33,643 $44,218 $ 36,216 $207,893
======= ======= ======= ======= ======== ========
GAP 495 12,458 12,671 485 (26,109)
GAP/ Total Assets .24% 5.99% 6.09% .23% (12.56%)
Cumulative GAP 495 12,953 25,624 26,109 0
Cumulative GAP/Total Assets .24% 6.23% 12.33% 12.56% 0.00%
The above analysis contains repricing and maturity assumptions and estimates
used by management.
- --------------------------------------------------------------------------------
57
17
Liquidity
Liquidity management ensures that funds are available to meet loan commitments,
deposit withdrawals, and operating expenses. Funds are provided by loan
repayments, investment securities maturities, or deposits, and can be raised by
liquidating assets or through additional borrowings. The Holding Company had
investment securities with an estimated market value of $62,066,615 classified
as available for sale at December 31, 2000. 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 Holding Company's
subsidiary banks, Progressive Bank, N.A., and Progressive Bank, N.A.-
Buckhannon, are members of the Federal Home Loan Bank of Pittsburgh (FHLB).
Membership in the FHLB provides an additional source of short-term and long-term
funding, in the form of collateralized advances. At December 31, 2000, the
subsidiary banks had unused lines of credit available with the FHLB in the
aggregate amount of $10,296,000. There were no borrowings outstanding pursuant
to these agreements as of December 31, 2000.
At December 31, 2000 and December 31, 1999, the Holding Company had outstanding
loan commitments and unused lines of credit totaling $14,307,000 and
$11,071,000, respectively. As of December 31, 2000, management placed a high
probability for required funding within one year of approximately $10,790,000.
Approximately $3,106,000 is principally unused home equity and credit card lines
on which management places a low probability for required funding.
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. The stock prices reflected have
been adjusted for the effect of the twenty percent (20%) common stock dividend
to shareholders of record on November 1, 1999.
Stock Prices
Low High
2000
4th Quarter $ 13.00 $ 14.63
3rd Quarter $ 13.88 $ 14.50
2nd Quarter $ 14.25 $ 15.50
1st Quarter $ 15.13 $ 16.50
1999
4th Quarter $ 16.10 $ 18.00
3rd Quarter $ 16.40 $ 17.80
2nd Quarter $ 17.00 $ 18.40
1st Quarter $ 18.40 $ 22.40
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position, recorded
at fair value. SFAS No. 133 precludes a held-to-maturity security from being
designated as a hedge item. However, at the date of initial application of SFAS
No. 133, an entity is permitted to transfer any held-to-maturity security into
the available-for-sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of SFAS No. 115, "Accounting for Certain Investment in Debt and
Equity Securities." Such transfers do not raise an issue regarding an entity's
intent to hold other debt securities to maturity in the future. The FASB has
also issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective date of FASB Statement No. 133." SFAS No.
137 defers the effective date of SFAS No. 133 to be effective for all fiscal
quarters beginning after June 15, 2000. Earlier adoption is permitted for any
fiscal quarter that begins after the issue date of SFAS No. 133. The adoption of
SFAS No. 133 did not have a material impact on the Company.
The FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." SFAS No. 138 addresses a limited number of issues
causing implementation difficulties for numerous entities that have adopted SFAS
No. 133 and amends the accounting and reporting standards for SFAS No. 133 for
certain derivative instruments and certain hedging activities as indicated in
the statement. The effective date of this statement is concurrent with the
effective date of SFAS. No. 133 (deferred by SFAS No. 137), which is for all
fiscal quarters beginning after June 15, 2000. The adoption of SFAS No. 138 did
not have a material impact on the Company.
FASB recently issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS
No. 125 and revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of SFAS 125's provisions without reconsideration. Under
SFAS No. 140, after a transfer of financial assets, an entity must recognize the
financial and servicing assets it controls and the liabilities it has incurred,
and derecognize financial assets when control has been surrendered, and
derecognize liabilities when extinguished. A transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as a
sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchanged. This Statement is generally
effective for activity occurring after March 31, 2001. Earlier or retroactive
application of this Statement is not permitted. Management believes that the
adoption of SFAS No. 140 will not have a material impact on the Company.
- --------------------------------------------------------------------------------
58
18
- --------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- --------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Total interest income $3,497,338 $3,652,438 $3,830,686 $3,888,939
Total interest expense 1,592,567 1,717,471 1,880,663 1,964,826
Net interest income 1,904,771 1,934,967 1,950,023 1,924,113
Provision for loan losses 97,500 97,500 100,500 141,000
Investment Securities Gain (Loss) 23,443 0 0 4
Total other income 207,183 191,360 231,450 226,688
Total other expenses 1,227,411 1,204,469 1,204,439 1,179,994
Income before income taxes 810,486 824,358 876,534 829,811
Net income 559,543 584,860 603,940 577,563
Net income per share (1) .36 .38 .39 .38
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
---------- --------- ---------- ----------
Total interest income $3,117,090 $3,220,452 $3,455,711 $3,413,428
Total interest expense 1,321,239 1,340,768 1,440,894 1,499,061
Net interest income 1,795,851 1,879,684 2,014,817 1,914,367
Provision for loan losses 76,500 76,500 97,500 97,500
Investment Securities Gain (Loss) 9,153 3,312 54 (20)
Total other income 198,994 479,611 199,019 183,297
Total other expenses 1,133,286 1,177,455 1,284,423 1,145,078
Income before income taxes 794,212 1,108,652 831,967 855,066
Net income 548,216 744,190 566,517 591,458
Net income per share (1) .36 .48 .37 .38
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Total interest income $3,017,292 $3,062,636 $3,148,133 $3,224,052
Total interest expense 1,276,939 1,325,792 1,363,263 1,357,847
Net interest income 1,740,353 1,736,844 1,784,870 1,866,205
Provision for loan losses 46,500 56,500 76,500 76,500
Investment Securities Gain (Loss) (1,608) -- 2,786 --
Total other income 191,504 183,293 215,373 195,010
Total other expenses 1,109,594 1,125,921 1,172,069 1,266,218
Income before income taxes 774,155 737,716 754,460 718,497
Net income 519,740 501,192 515,715 496,378
Net income per share (1) .34 .33 .33 .32
(1) Adjusted for the 2 percent common stock dividend to stockholders of
record as of December 1, 2000, a 6 for 5 stock split in the effect of
a twenty (20) percent common stock dividend, declared October 12, 1999
to shareholders of record as of November 1, 1999, and a 4 percent
common stock dividend to stockholders of record as of October 1, 1998.
- --------------------------------------------------------------------------------
59
19
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
60
20
SNODGRASS
Certified Public Accountants
Independent Auditor's Report
----------------------------
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 subsidiaries as of December 31, 2000 and 1999, 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,
2000. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 subsidiaries at December 31, 2000 and 1999, and the results of its
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000, in conformity with generally
accepted accounting principles.
/s/S. R. Snodgrass, A.C.
Wheeling, West Virginia
January 23, 2001
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400
Phone: 304-233-5030 Facsimile: 304-233-3062
61
21
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 4,944,650 $ 5,335,861
Due from banks - interest bearing 7,491,600 6,478,406
------------- -------------
Total cash and cash equivalents 12,436,250 11,814,267
Federal funds sold 4,396,000 2,485,000
Investment securities:
Available-for-sale (at fair value) 62,066,615 49,449,312
Held-to-maturity (fair value of $10,920,799
and $10,436,842, respectively) 10,878,166 10,646,112
Loans, net of unearned income 114,053,003 110,488,432
Less allowance for possible loan losses (1,302,044) (1,147,720)
------------- -------------
Net loans 112,750,959 109,340,712
Premises and equipment, net 2,754,739 2,841,337
Accrued income receivable 1,543,124 1,356,419
Other assets 1,067,356 1,239,475
------------- -------------
Total assets $ 207,893,209 $ 189,172,634
============= =============
LIABILITIES
Noninterest bearing deposits:
Demand $ 16,518,451 $ 14,780,305
Interest bearing deposits:
Demand 24,055,457 23,961,233
Savings 59,943,940 52,872,689
Time 73,150,730 69,943,705
------------- -------------
Total deposits 173,668,578 161,557,932
Federal funds purchased and repurchase agreements 14,526,328 10,273,925
Accrued interest on deposits 598,235 499,352
Other liabilities 874,968 785,953
------------- -------------
Total liabilities 189,668,109 173,117,162
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - 2,000,000 shares authorized at $5 par value:
1,538,443 shares issued at December 31, 2000, and
1,508,526 shares issued at December 31, 1999 7,692,215 7,542,630
Surplus 4,982,606 4,739,381
Retained earnings 5,587,967 4,638,742
Accumulated other comprehensive income (37,688) (865,281)
------------- -------------
Total stockholders' equity 18,225,100 16,055,472
------------- -------------
Total liabilities and stockholders' equity $ 207,893,209 $ 189,172,634
============= =============
The accompanying notes are an integral part of the financial statements.
62
22
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans
and lease financing:
Taxable $ 9,614,503 $ 9,114,144 $ 8,873,747
Tax-exempt 238,413 191,674 204,726
Investment securities:
Taxable 3,666,022 2,917,399 2,494,614
Tax-exempt 523,408 506,575 382,111
Dividends 44,940 37,813 28,482
Other interest income 401,934 195,545 138,252
Interest on federal funds sold 380,181 243,531 330,181
----------- ----------- -----------
Total interest income 14,869,401 13,206,681 12,452,113
----------- ----------- -----------
INTEREST EXPENSE
Deposits 6,518,858 5,309,346 5,096,756
Other borrowings 636,669 292,616 227,085
----------- ----------- -----------
Total interest expense 7,155,527 5,601,962 5,323,841
----------- ----------- -----------
Net interest income 7,713,874 7,604,719 7,128,272
PROVISION FOR POSSIBLE LOAN LOSSES 436,500 348,000 256,000
----------- ----------- -----------
Net interest income after provision
for possible loan losses 7,277,374 7,256,719 6,872,272
----------- ----------- -----------
NONINTEREST INCOME
Service charges and other fees 535,407 508,751 490,834
Gain on sale of building and land -- 301,862 --
Securities gains (losses) 23,447 12,499 1,178
Other operating income 321,274 250,308 294,346
----------- ----------- -----------
Total noninterest income 880,128 1,073,420 786,358
----------- ----------- -----------
NONINTEREST EXPENSE
Salary and employee benefits 2,539,612 2,433,917 2,414,862
Net occupancy expense of premises 772,233 768,917 796,133
Other operating expenses 1,504,468 1,537,408 1,462,807
----------- ----------- -----------
Total noninterest expense 4,816,313 4,740,242 4,673,802
----------- ----------- -----------
Income before income taxes 3,341,189 3,589,897 2,984,828
INCOME TAXES 1,015,283 1,139,516 951,803
----------- ----------- -----------
Net income $ 2,325,906 $ 2,450,381 $ 2,033,025
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,538,443 1,538,443 1,538,443
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.51 $ 1.59 $ 1.32
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
63
23
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Compre- Compre-
-------------------- Retained hensive hensive
Shares Stock Surplus Earnings Income Income Total
--------- ---------- ---------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 1,209,085 $6,045,425 $3,764,000 $ 4,196,076 $ 123,494 $14,128,995
Comprehensive income
Net income - - - 2,033,025 - $ 2,033,025 2,033,025
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - 36,554 36,554 36,554
-----------
Comprehensive income $ 2,069,579
===========
Cash dividend ($.48 per share) - - - (732,677) - (732,677)
Cash paid in lieu of fractional
shares on stock dividend - - - (4,959) - (4,959)
4% common stock dividend
at fair market value 48,167 240,835 975,381 (1,216,216) - -
--------- ---------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 1,257,252 6,286,260 4,739,381 4,275,249 160,048 15,460,938
Comprehensive income
Net income - - - 2,450,381 - $ 2,450,381 2,450,381
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - (1,025,329) (1,025,329) (1,025,329)
-----------
Comprehensive income $ 1,425,052
===========
Cash dividend ($.54 per share) - - - (827,247) - (827,247)
Cash paid in lieu of fractional
shares on stock dividend - - - (3,271) - (3,271)
20% common stock dividend
at par value 251,274 1,256,370 - (1,256,370) - -
--------- ---------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 1,508,526 7,542,630 4,739,381 4,638,742 (865,281) 16,055,472
Comprehensive income
Net income - - - 2,325,906 - $ 2,325,906 2,325,906
Other comprehensive income,
net of tax:
Unrealized gains (losses)
on securities net of
reclassification adjustment
(see disclosure) - - - - 827,593 827,593 827,593
-----------
Comprehensive income $ 3,153,499
===========
Cash dividend ($.64 per share) - - - (980,542) - (980,542)
Cash paid in lieu of fractional
shares on stock dividend - - - (3,329) - (3,329)
2% common stock dividend
at par value 29,917 149,585 243,225 (392,810) - -
--------- ---------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 1,538,443 $7,692,215 $4,982,606 $ 5,587,967 $ (37,688) $18,225,100
========= ========== ========== =========== =========== ===========
2000 1999 1998
---------- ----------- -----------
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during period $842,290 $(1,017,495) $37,296
Less reclassification adjustment for
gains (losses) included in net income 14,697 7,834 742
-------- ---------- -------
Net unrealized gains (losses)
on securities $827,593 $(1,025,329) $36,554
======== ========== =======
The accompanying notes are an integral part of the financial statements.
64
24
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,325,906 $ 2,450,381 $ 2,033,025
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 436,500 348,000 256,000
Depreciation and amortization 337,148 357,987 377,721
Amortization (accretion) of
investment securities, net (316,940) (105,679) (83,194)
Investment security losses (gains) (23,447) (12,499) (1,178)
Gain on sale of building and land -- (301,862) --
Decrease (increase) in
interest receivable (186,705) (113,813) (166,905)
Increase (decrease) in interest payable 98,883 27,255 39,227
Other, net (231,613) 140,163 163,445
------------ ------------ ------------
Net cash provided by
operating activities 2,439,732 2,789,933 2,618,141
------------ ------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease
in federal funds sold (1,911,000) 1,607,000 2,840,000
Net (increase) decrease in loans,
net of charge-offs (3,881,055) (7,277,881) (8,554,313)
Proceeds from sales of securities
available-for-sale 891,610 2,660,611 6,543
Proceeds from maturities of securities
available-for-sale 53,064,000 44,681,367 34,648,171
Proceeds from maturities of securities
held-to-maturity 1,637,000 2,716,000 976,000
Principal collected on mortgage-
backed securities 3,558,412 4,811,188 2,962,199
Purchases of securities available-
for-sale (68,471,833) (59,728,039) (40,194,992)
Purchases of securities held-
to-maturity (1,867,819) (2,017,367) (7,546,999)
Recoveries on loans previously
charged-off 34,308 21,576 21,796
Purchases of premises and equipment (250,550) (110,881) (493,316)
Proceeds from sales of premises
and equipment -- 418,152 --
------------ ------------ ------------
Net cash used in
investing activities (17,196,927) (12,218,274) (15,334,911)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 12,110,646 13,773,113 10,740,006
Dividends paid (983,871) (830,518) (737,635)
Increase (decrease ) in short-
term borrowings 4,252,403 3,279,901 2,919,028
------------ ------------ ------------
Net cash provided by
financing activities 15,379,178 16,222,496 12,921,399
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 621,983 6,794,155 204,629
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 11,814,267 5,020,112 4,815,483
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 12,436,250 $ 11,814,267 $ 5,020,112
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 7,056,644 $ 5,574,707 $ 4,696,866
Cash paid for income taxes 1,213,168 1,190,631 1,081,701
The accompanying notes are an integral part of the financial statements
65
25
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First West Virginia Bancorp, Inc. (the
"Corporation") and its subsidiaries conform with generally accepted accounting
principles and with general practices within the banking industry. The following
is a summary of the significant policies:
Nature of Operations
- --------------------
First West Virginia Bancorp, Inc. provides a variety of banking services to
individuals and businesses through the branch network of its two affiliate banks
(the "Banks"). The Banks operate seven full service branches located in Wheeling
(2), Wellsburg, Moundsville, 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 Corporation include the financial
statements of the parent and its wholly-owned subsidiaries, Progressive Bank,
N.A. and Progressive Bank, N.A.-Buckhannon. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Investment Securities
- ----------------------
Investment securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. The
Corporation uses the interest method to amortize premiums and accrete discounts.
All other securities are classified as available-for-sale and carried at fair
value, with net unrealized gains and losses included in stockholders' equity on
an after-tax basis. The Corporation does not currently conduct short term
purchase and sale transactions of investment securities which would be
classified as trading securities.
Gains or losses on dispositions of investment securities are computed by using
the adjusted cost of the specific securities sold. Securities gains or losses
are shown separately as non-interest income in the consolidated statements of
income.
Interest and Fees on Loans
- --------------------------
Interest income on loans is accrued based on the principal outstanding. It is
the Corporation'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 Corporation accounts for impaired loans in accordance with the provisions of
FAS No. 114 and No. 118, "Accounting for Creditors for Impairment of a Loan." It
is the Corporation'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.
Since the adoption of FAS Nos. 114 and 118, the Corporation had no loans which
management has determined to be impaired.
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 is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense and reduced by charge-offs, net of recoveries. Because of
uncertainties inherent in the estimation process, management's estimate of
credit losses inherent in the loan portfolio and the related allowance may
change in the near term.
66
26
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Provisions for depreciation and amortization are computed
generally using the straight-line method on 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. Major renewals and
betterments are capitalized at cost.
Income Taxes
- ------------
The Corporation accounts for income taxes under the asset and liability method.
Income tax expense is reported as the total of current income taxes payable and
the net change in deferred income taxes provided for temporary differences.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and the values used for income tax purposes. Deferred income taxes are
recorded at the statutory Federal and state tax rates in effect at the time that
the temporary differences are expected to reverse.
The Corporation files a consolidated Federal income tax return which includes
all its subsidiaries. Income tax expense is allocated among the parent company
and its subsidiaries as if each had filed a separate return.
Cash Flows
- ----------
Cash and cash equivalents consist of cash on hand and amounts due from banks.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
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 Corporation has no securities which would be considered potential common
stock.
Stock Dividends
- ---------------
On September 8, 1998, the Corporation declared a 4% stock dividend to
stockholders of record on October 1, 1998. On October 12, 1999, the Corporation
declared a 20% stock dividend to stockholders of record on November 1, 1999. On
October 12, 2000, the Corporation declared a 2% stock dividend to stockholders
of record on December 1, 2000. All common share data includes the effect of the
stock dividends.
Purchase Method of Accounting
- -------------------------------
Net assets of organizations acquired in purchase transactions are recorded at
fair value at the date of the transaction. The cost of core deposits and the
excess of cost over net assets of affiliates purchased is being amortized over a
ten year period on the straight-line method. Annual amortization expense was
approximately $4,000 in 1998. There was no amortization expense in 2000 and
1999.
Reclassifications
- ------------------
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
67
27
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 2 - INVESTMENT SECURITIES
The estimated fair values of investment securities are as follows at December
31, 2000 and 1999:
December 31, 2000
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ----------- -----------
Securities held to maturity: (Expressed in Thousands)
----------------------------
Obligations of states and political subdivisions $10,878 $ 93 $ (50) $10,921
------- ---- ----- -------
Total held to maturity 10,878 93 (50) 10,921
------- ---- ----- -------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 43,320 50 (323) 43,047
Obligations of states and political subdivisions 2,001 50 - 2,051
Corporate debt securities 591 1 - 592
Mortgage-backed securities 15,188 130 (32) 15,286
Equity securities 1,027 82 (18) 1,091
------- ---- ----- -------
Total available for sale 62,127 313 (373) 62,067
------- ---- ----- -------
Total $73,005 $406 $(423) $72,988
======= ==== ===== =======
December 31, 1999
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ----------- -----------
Securities held to maturity: (Expressed in Thousands)
----------------------------
Obligations of states and political subdivisions $10,646 $ 12 $ (221) $10,437
------- ---- ------- -------
Total held to maturity 10,646 12 (221) 10,437
------- ---- ------- -------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 42,072 - (1,372) 40,700
Obligations of states and political subdivisions 504 3 - 507
Corporate debt securities 102 - - 102
Mortgage-backed securities 7,153 1 (105) 7,049
Equity securities 999 125 (33) 1,091
------- ---- ------- -------
Total available for sale 50,830 129 (1,510) 49,449
------- ---- ------- -------
Total $61,476 $141 $(1,731) $59,886
======= ==== ======= =======
68
28
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 2000, 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.
Securities Securities
Held to Maturity Available for Sale
--------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ----------- -----------
(Expressed in Thousands)
Due in one year or less $ 2,008 $ 2,009 $ 8,955 $ 8,943
Due after one year through five years 3,745 3,741 26,032 25,899
Due after five years through ten years 5,029 5,068 10,925 10,848
Due after ten years 96 103 -- --
------- ------- ------- -------
10,878 10,921 45,912 45,690
Mortgage-backed securities -- -- 15,188 15,286
Equity securities -- -- 1,027 1,091
------- ------- ------- -------
Total $10,878 $10,921 $62,127 $62,067
======= ======= ======= =======
Proceeds from sales of securities available-for-sale during the years ended
December 31, 2000, 1999, and 1998, were $891,610, $2,660,611, and $6,543,
respectively. Gross gains of $37,956 and gross losses of $14,509 in 2000; gross
gains of $26,247 and gross losses of $13,748 in 1999; and gross gains of $2,786
and gross losses of $1,608 in 1998, were realized on those sales. Assets carried
at $38,758,000 and $28,994,000 at December 31, 2000 and 1999, 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, 2000 and 1999, are as follows:
(Expressed in Thousands)
2000 1999
------------ ------------
Real estate-construction $ 119 $ 73
Real estate-farmland 106 79
Real estate-residential 42,960 39,898
Real estate-secured by non-farm, non-residential 28,391 29,218
Commercial and industrial loans 13,845 13,542
Installment and other loans to individuals 23,896 24,513
Non-rated industrial development obligations 4,610 2,867
Other loans 216 396
-------- --------
Total 114,143 110,586
Less unearned interest and deferred fees 90 97
-------- --------
Net loans $114,053 $110,489
======== ========
69
29
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 3 - LOANS AND LEASES (CONTINUED)
The Corporation had no loans at December 31, 2000 and 1999, that were
specifically classified as impaired. Non-accrual loans amounted to $1,248,463
and $572,949 at December 31, 2000 and 1999, respectively. The amount of interest
income that would have been recognized had the loans performed in accordance
with their original terms was $42,200 and $43,000 for 2000 and 1999,
respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
December 31,
2000 1999
------------ ------------
Balance, beginning of year $ 1,147,720 $ 1,122,912
Additions charged to operating expense 436,500 348,000
Recoveries 34,308 21,576
------------ ------------
Total 1,618,528 1,492,488
Less loans charged-off 316,484 344,768
------------ ------------
Balance, end of year $ 1,302,044 $ 1,147,720
============ ============
The entire allowance represents a valuation reserve which is available for
future charge-offs of loans and leases.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation, as
follows:
Original
December 31, Useful Life
2000 1999 Years
------------ ------------ ------------
Land $ 1,082,001 $ 1,071,451
Land improvements 242,089 242,089 20
Leasehold improvements 399,598 396,898 25
Buildings 2,745,068 2,748,067 20 - 50
Furniture, fixtures & equipment 2,339,435 2,270,297 3 - 20
------------ ------------
Total 6,808,191 6,728,802
Less accumulated depreciation 4,053,452 3,887,465
------------ ------------
Premises and equipment, net $ 2,754,739 $ 2,841,337
============ ============
Charges to operations for depreciation approximated $337,148, $357,987, and
$373,673 for 2000, 1999, and 1998, respectively.
70
30
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 6 - DEPOSITS
The composition of the banks' deposits at December 31 follows:
(Expressed in Thousands)
2000
---------------------------------------------------------
Demand
----------------------------
Noninterest Interest
Bearing Bearing Savings Time
------------ ------------ ------------ ---------
Individuals, partnerships and corporations $ 14,872 $ 21,814 $ 56,901 $ 70,322
United States Government 40 - - -
States and political subdivisions 160 2,242 3,043 2,829
Commercial banks - - - -
Other depository institutions 336 - - -
Certified and official checks 1,110 - - -
------------ ------------ ------------ ---------
Total $ 16,518 $ 24,056 $ 59,944 $ 73,151
============ ============ ============ =========
(Expressed in Thousands)
1999
---------------------------------------------------------
Demand
----------------------------
Noninterest Interest
Bearing Bearing Savings Time
------------ ------------ ------------ ---------
Individuals, partnerships and corporations $ 13,184 $ 21,098 $ 50,718 $ 67,695
United States Government 36 - - -
States and political subdivisions 246 2,863 2,155 2,239
Commercial banks - - - -
Other depository institutions 233 - - 10
Certified and official checks 1,081 - - -
------------ ------------ ------------ ---------
Total $ 14,780 $ 23,961 $ 52,873 $ 69,944
============ ============ ============ =========
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $17,456,000 and $15,603,000 at December 31,
2000 and 1999, respectively.
A maturity distribution of time certificates of deposit of $100,000 or more at
December 31, 2000, follows:
Due in three months or less $ 4,614,000
Due after three months through six months 2,808,000
Due after six months through twelve months 3,863,000
Due after one year through five years 6,171,000
------------
Total $ 17,456,000
============
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
2000 1999 1998
----------- ----------- ---------
Currently payable:
Federal $ 985,940 $ 1,002,894 $ 849,935
State 189,896 198,482 178,101
Deferred:
Federal (118,498) (51,252) (65,899)
State (42,055) (10,608) (10,334)
----------- ----------- ---------
Income tax expense $ 1,015,283 $ 1,139,516 $ 951,803
=========== =========== =========
71
31
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 7 - INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax asset at
December 31:
2000 1999
--------- ----------
Allowance for loan losses $ 338,534 $ 289,143
Deferred loan fees 30,595 33,017
Accrued interest on non-performing loans 26,266 18,551
Deferred compensation 162,110 127,766
Deferred directors fees 27,645 24,815
Depreciation 36,317 7,654
Deferred state income tax (34,117) (25,897)
Other, net (1,162) (2,920)
--------- ---------
Total deferred tax asset - federal 586,188 472,129
Total deferred tax asset - state 100,343 76,169
--------- ---------
686,531 548,298
Deferred tax assets (liabilities) arising from market
adjustments of securities available for sale
Federal 19,421 445,750
State 3,018 69,437
---------- ----------
Total deferred tax assets $ 708,970 $1,063,485
========= ==========
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:
2000 1999 1998
--------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- --------- -------
Computed tax at statutory
Federal rate $1,136,004 34.0 % $1,220,565 34.0 % $1,014,842 34.0 %
Plus state income taxes net
Of federal tax benefits 97,575 2.9 123,996 3.5 110,726 3.7
---------- ---- ---------- ---- ---------- ----
1,233,579 36.9 1,344,561 37.5 1,125,568 37.7
Increase (decrease) in taxes
resulting from:
Tax exempt income (259,893) (7.7) (237,451) (6.6) (199,870) (6.6)
Nondeductible interest expense 37,608 1.1 30,095 0.8 25,260 0.8
Nondeductible goodwill - 0.0 - 0.0 1,376 0.0
Others - net 3,989 0.1 2,311 0.0 (531) 0.0
---------- ---- ---------- ---- --------- ----
Actual tax expense $1,015,283 30.4 % $1,139,516 31.7 % $ 951,803 31.9 %
========== ==== ========== ==== ========= ====
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Corporation has a non-contributory profit-sharing plan for employees meeting
certain service requirements. The Corporation makes annual contributions to the
profit-sharing plan based on income of the Corporation as defined. Total
expenses for the plan were $113,200, $123,700, and $143,100 for the years ended
December 31, 2000, 1999, and 1998, respectively.
The Corporation also offers a 401(k) plan in which it matches a portion of the
employee's contribution up to 4% of their salary. The expense related to the
401(k) plan was $19,151, $20,693, and $15,119 in 2000, 1999, and 1998,
respectively.
72
32
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
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 Banks' control.
Information related to repurchase agreements is summarized below:
2000 1999 1998
------------- ------------ ------------
Balance at end of year $14,526,328 $ 9,923,925 $ 6,994,024
Average balance during the year 14,086,160 8,984,571 6,598,665
Maximum month-end balance 18,362,645 11,122,282 9,218,303
Weighted-average rate during the year 4.53% 3.24% 3.44%
Rate at December 31 3.61% 1.77% 2.31%
The subsidiary Banks had no significant activity in federal funds purchased
during 1998. Information related to federal funds purchased for 2000 and 1999 is
summarized below:
2000 1999
------------- ------------
Balance at end of year $ - 350,000
Average balance during the year 10,765 27,674
Maximum month-end balance 100,000 650,000
Weighted-average rate during the year 5.19% 4.55%
Rate at December 31 - 5.00%
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The subsidiary Banks are 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
Corporation has in particular classes of financial instruments.
The Corporation'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 Corporation 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:
2000 1999
------------- ------------
Commitments to extend credit $ 14,272,000 $ 11,046,000
Standby letters of credit 35,000 25,000
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 Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation 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 Corporation
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 expire in 2000. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
As members of the Federal Home Loan Bank of Pittsburgh (FHLB), the subsidiary
Banks have the ability to borrow funds from the FHLB at prevailing interest
rates. At December 31, 2000, the subsidiary Banks had unused lines of credit
available with the FHLB in the aggregate amount of $10,296,000. There were no
outstanding borrowings at December 31, 2000.
73
33
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 2, 2000, the Corporation's subsidiary, Progressive Bank, N.A.,
entered into a Purchase and Assumption Agreement with United National Bank to
purchase the building and deposits of United's New Martinsville, West Virginia
branch office. Progressive Bank also entered into a Real Estate Purchase
Agreement to purchase the building and land of United's Moundsville, West
Virginia office located on Lafayette Avenue. The acquisition of the Moundsville
Real estate closed in January 2001, while the New Martinsville acquisition is
expected to close during the first quarter of 2001. The acquisition of the two
offices will add approximately $11.3 million in assets to the Corporation. The
deposits to be acquired in New Martinsville are approximately $9.5 million.
NOTE 11 - RELATED PARTY TRANSACTIONS
Directors and officers of the Corporation and its subsidiaries, and their
associates, were customers of, and had other transactions with the subsidiary
Banks 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 $4,242,267 at December 31, 2000, and $4,262,517 at December
31, 1999.
The following is an analysis of loan activity to directors, executive officers,
and associates of the Corporation and its subsidiaries:
December 31,
2000 1999
----------- -----------
Balance, January 1 $ 4,262,517 $ 4,320,419
New loans during the period 788,856 1,055,186
Repayments during the period (809,106) (1,113,088)
----------- -----------
Ending balance $ 4,242,267 $ 4,262,517
=========== ============
NOTE 12 - CONCENTRATIONS OF CREDIT RISK
Most of the affiliate Banks' loans and commitments have been granted to
customers in the Banks' primary market areas of Northern and Central West
Virginia, Eastern Ohio, and Southwestern Pennsylvania. In the normal course of
business, however, the Banks have purchased participations and originated loans
outside of their primary market areas. The aggregate loan balances outstanding
in any one geographic area, other than the Banks' primary lending areas, do not
exceed 10% of total loans. No specific industry concentrations exceeded 10% of
total exposure. The concentrations of credit by type of loan are set forth in
Note 3.
NOTE 13 - LEASES
The Corporation'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 Corporation will pay for insurance,
taxes, and maintenance.
As of December 31, 2000, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year, are as
follows:
December 31, 2001 $ 82,000
December 31, 2002 78,000
December 31, 2003 78,000
December 31, 2004 78,000
December 31, 2005 40,750
Thereafter 286,870
Rental expense under operating leases approximated $101,000 in 2000; $91,000 in
1999; and $103,000 in 1998.
74
34
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 14 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
2000 1999 1998
---------- ---------- ----------
Directors fees $ 150,375 $ 137,150 $ 121,800
Stationery and supplies 126,701 138,959 161,921
Regulatory assessment and deposit insurance 99,888 79,985 75,381
Advertising 144,691 123,680 107,511
Postage and transportation 135,688 128,374 131,445
Other taxes 139,882 140,949 135,831
Service Expense 224,833 230,116 161,715
Other 482,410 558,195 567,203
---------- ---------- ----------
Total $1,504,468 $1,537,408 $1,462,807
========== ========== ==========
NOTE 15 - RESTRICTION ON CASH
The subsidiary Banks are 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, 2000 and 1999, were $872,000 and
$892,000, respectively.
NOTE 16 - LIMITATIONS ON DIVIDENDS
The approval of the Comptroller of the Currency is required to pay dividends if
the total of all dividends declared by a national bank in any calendar year
exceeds the total of its net profits (as defined) for the year, combined with
its retained net profits of the preceding two years. Under this formula, the
subsidiary Banks can declare dividends in 2001, without approval of the
Comptroller of the Currency, of approximately $3 million, plus an additional
amount equal to the Bank's net profit for 2001 up to the date of any such
dividend declaration. The subsidiary Banks are the primary source of funds to
pay dividends to the stockholders of First West Virginia Bancorp, Inc.
NOTE 17 - REGULATORY MATTERS
The affiliate Banks 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 Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks' 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 banks 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 average
assets (as defined). Management believes, as of December 31, 2000, that the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 2000, the most recent notifications from the Office of the
Comptroller of the Currency categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since those notifications that management believes have
changed the institutions' category.
75
35
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 17 - REGULATORY MATTERS (CONTINUED)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- -----------------
(Amounts Expressed in Thousands) Amount Ratio Amount Ratio Amount Ratio
--------- ----- -------- ----- -------- -----
As of December 31, 2000:
Total Capital $ 18,861 15.4% $ 9,829 8.0% $ 12,286 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 17,559 14.3% $ 4,914 4.0% $ 7,372 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 17,559 8.3% $ 6,314 3.0% $ 10,523 5.0%
(to Average Assets)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- -----------------
(Amounts Expressed in Thousands) Amount Ratio Amount Ratio Amount Ratio
--------- ----- -------- ----- -------- -----
As of December 31, 1999:
Total Capital $ 17,092 14.8% $ 9,226 8.0% $ 11,532 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 15,944 13.8% $ 4,613 4.0% $ 6,919 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 15,944 8.4% $ 5,692 3.0% $ 9,487 5.0%
(to Average Assets)
NOTE 18 - 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 Corporation in estimating
the fair value disclosures for financial instruments:
Cash and Short-term Investments: The carrying amount for cash and short-term
investments is a reasonable estimate of fair value. Short-term investments
consist of federal funds sold.
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 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.
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.
Short-Term Borrowings: The carrying amount for short-term borrowings, which
consist of repurchase agreements, is considered to be a reasonable estimate of
fair value.
76
36
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 18 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 are
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)
2000 1999
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- -----------
Financial assets:
Cash and short-term investments $ 16,832 $ 16,832 $ 14,299 $ 14,299
Investment securities 72,945 72,987 60,095 59,884
Loans 112,751 112,720 109,341 108,592
Financial liabilities:
Deposits 173,669 173,373 161,558 160,746
Short-term borrowings 14,526 14,526 10,274 10,274
NOTE 19 - COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income in a full set of financial statements. The Corporation adopted this
statement on January 1, 1998. Unrealized gains and losses on securities
available for sale are the only components of other comprehensive income that
apply to the Corporation.
2000 1999 1998
------------- ---------- -----------
Before-tax amount $ 1,326,909 $(1,635,810) $ 57,995
Tax effect 499,316 610,481 (21,441)
------------ ---------- -----------
Net-of-tax amount $ 827,593 $(1,025,329) $ 36,554
============ ========== ===========
77
37
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed balance sheets, statements of income, and
statements of cash flows for First West Virginia Bancorp, Inc.
BALANCE SHEETS
December 31,
2000 1999
----------- -----------
ASSETS
Cash $ 384,484 $ 496,694
Investment in common stock - available
for sale (at market value) 461,684 402,212
Investment in subsidiary banks 17,706,302 15,447,520
Land and buildings, net - -
Other assets 169,731 121,591
----------- -----------
Total assets $18,722,201 $16,468,017
========== ==========
LIABILITIES
Accrued expenses $ 20,306 $ 36,764
Deferred compensation 476,795 375,781
----------- -----------
Total liabilities 497,101 412,545
STOCKHOLDERS' EQUITY 18,225,100 16,055,472
----------- -----------
Total liabilities and stockholders' equity $18,722,201 $16,468,017
========== ==========
STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
---------- ---------- ----------
INCOME
Dividends from subsidiary banks $ 957,190 $ 817,700 $ 769,600
Rental income - 13,000 40,000
Gain on sale of land and building - 301,862 -
Gain on sale of investments 23,436 10,864 1,178
Other income 143,455 134,930 128,220
---------- ---------- ----------
Total income 1,124,081 1,278,356 938,998
---------- ---------- ----------
EXPENSES
Salary and employee benefits 119,315 86,109 100,346
Interest expense 2,580 2,580 2,400
Occupancy expense - 3,800 11,399
Other expenses 136,863 132,940 129,469
---------- ---------- ----------
Total expenses 258,758 225,429 243,614
---------- ---------- ----------
Income before income taxes and
equity in undistributed income
of subsidiaries 865,323 1,052,927 695,384
INCOME TAX (PROVISION) BENEFIT 37,557 (85,493) 30,399
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 1,423,026 1,482,947 1,307,242
---------- ---------- ----------
Net income $2,325,906 $2,450,381 $2,033,025
=========== ========== ==========
78
38
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000, 1999 AND 1998
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---------- ---------- ----------
OPERATING ACTIVITIES
Net income $2,325,906 $2,450,381 $2,033,025
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization - 3,800 15,447
Change in deferred tax benefit (39,179) (32,565) (37,952)
Undistributed earnings of affiliates (1,413,406) (1,482,947) (1,307,242)
Changes in operating assets
and liabilities:
Other assets 1,626 (1,625) 2,000
Deferred compensation 101,013 85,149 100,346
Other liabilities (16,457) 6,598 4,795
Gain on sale of securities (23,436) (10,864) (1,178)
Gain on sale of land and buildings - (301,862) -
---------- ---------- ----------
Net cash provided by
operating activities 936,067 716,065 809,241
---------- ---------- ---------
INVESTING ACTIVITIES
Proceeds from sale of securities 91,567 102,000 6,543
Proceeds from sale of land and building - 418,152 56,791
Purchase of investment securities (155,973) (208,722) (116,364)
---------- ---------- ----------
Net cash provided by (used in)
investing activities (64,406) 311,430 (53,030)
---------- ---------- ----------
FINANCING ACTIVITIES
Dividends paid (983,871) (830,518) (737,635)
---------- ---------- ----------
Net cash used in
financing activities (983,871) (830,518) (737,635)
---------- ---------- ----------
INCREASE IN CASH
AND CASH EQUIVALENTS (112,210) 196,977 18,576
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 496,694 299,717 281,141
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 384,484 $ 496,694 $ 299,717
=========== ========== ==========
Supplemental disclosures:
Cash paid for interest $ 2,580 $ 2,580 $ 2,400
Cash paid for income taxes 10,435 115,300 10,500
79
39
-----------------------------------------------------
First West Virginia Bancorp, Inc.
DIRECTORS
George F. Beneke. . . . . . Chairman Emeritus, First West Virginia Bancorp, Inc.
Retired Attorney at Law
Chairman of the Board, The Beneke Corporation
Sylvan J. Dlesk. . . . . . . . Vice Chairman, First West Virginia Bancorp, Inc.
President & Chief Executive Officer, Dlesk Realty and Investments
President, Dlesk, Inc.
President, Ohio Valley Carpeting, Inc.
President, Tri-State Floor Installations, Inc.
Charles K. Graham . .. . . . . . . . . President and Chief Executive Officer,
First West Virginia Bancorp, Inc.
President and Chief Executive Officer, Progressive Bank, N.A.
Vice Chairman, Progressive Bank, N.A. - Buckhannon
Ben R. Honecker . . . . . . . . . . . . . . . . . . . . . . . .Attorney at Law
Laura G. Inman . . . . Chairman of the Board, First West Virginia Bancorp, Inc.
Senior Vice President, Progressive Bank, N.A.
James C. Inman, Jr. . . . . . . . . . . . . . . . . . . .Retired Bank Executive
R. Clark Morton . . . . . . .Vice Chairman of the Board, Progressive Bank, N.A.
Attorney at Law
Karl W. Neumann . . . . . . . . . Chairman of the Board, Progressive Bank, N.A.
Retired Insurance Executive
Thomas A. Noice. . . . . . . . . . . . . . . . . . . . . Retired Bank Executive
William G. Petroplus. . . . . . . . . . . . . . . . . . . . . . Attorney at Law
Ronald L. Solomon. . . . . . . . . . . . . . . . . . . . . . . . Bank Executive
OFFICERS
George F. Beneke . . . . . . . . . . . . . . . . . . . . . . .Chairman Emeritus
Laura G. Inman . . . . . . . . . . . . . . . . . . . . . .Chairman of the Board
Sylvan J. Dlesk . . . . . . . . . . . . . . . . . . . . . . . . . Vice Chairman
Charles K. Graham . . . . . . . . . . . President and Chief Executive Officer
Beverly A. Barker..Executive Vice President, Chief Operating Officer, Treasurer
Francie P. Reppy . . . . . . . . Senior Vice President, Chief Financial Officer
Connie R. Tenney . . . . . . . . . . . . . . . . . . . . . . . . Vice President
David E. Yaeger . . . . . . . . . . . . . . . . . . . . . . . . .Vice President
Stephanie A. LaFlam . . . . . . . . . . . . . . . . . . . . . . . . . Secretary
-----------------------------------------------------
80
40
-----------------------------------------------------
SUBSIDIARY
Progressive Bank N.A.
Wheeling, WV 26003
DIRECTORS OFFICERS
George F. Beneke Robert B. Hunnel, Jr. Karl W. Neumann, Chairman of the Board
Nada E. Beneke James C. Inman, Jr. R. Clark Morton, Vice Chairman of the Board
Dr. Clyde D. Campbell Laura G. Inman Charles K. Graham, President & Chief Executive Officer
Robert R. Cicogna H. Dennis Long Beverly A. Barker, Executive Vice President/ Chief Operating Officer/Cashier
Gary P. DeVendra R. Clark Morton Laura G. Inman, Senior Vice President
Sylvan J. Dlesk Karl W. Neumann Francie P. Reppy, Senior Vice President, Chief Financial Officer
Charles K. Graham William G. Petroplus David E. Yaeger, Senior Vice President
C. Gary Hill Thomas L. Sable Gary S. Martin, Vice President
Ben R. Honecker Brad D. Winwood, Vice President
Stephanie A. LaFlam, Secretary/Assistant Vice President/
Human Resource Manager
DIRECTORS EMERITI Deborah A. Kloeppner, Assistant Vice President/Office Manager Bellaire
Bryan S. Ramsey, Assistant Vice President/Business Development
Harry N. Duvall William T. Nickerson Susan E. Reinbeau, Assistant Vice President/Branch Coordinator/
T. Stewart Hopkins Edward P. Otte Office Manager Woodsdale
Michele L. Stanley, Assistant Vice President/Office Manager Warwood
David E. Wharton, Assistant Vice President/Information Technology Officer
Harold O. Thomas, Senior Business Development Officer
Mitzi K. Mattern, Credit Card Manager/Office Manager Wellsburg
Lisa M. Wagner, Office Manager Moundsville
Laura K. Snedeker, Manager Bookkeeping/Proof Operations
Debra M. Tomlin, Loan Officer
SUBSIDIARY
Progressive Bank, N.A. - Buckhannon
Buckhannon, WV 26201
DIRECTORS OFFICERS
William L. Fury Dale F. Riggs Dale F. Riggs, Chairman
Charles K. Graham Douglas K. Stalnaker Charles K. Graham, Vice Chairman
J. Burton Hunter, III Douglas M. Stewart Connie R. Tenney, President/Chief Executive Officer/Cashier/Secretary
David R. Rexroad Connie R. Tenney J. Burton Hunter, III, Assistant Secretary
Rickie E. Rice Patty Ann Tharp, Office Manager Weston
Jayson Cain, Loan Officer
-----------------------------------------------------
81
41
Progressive Bank N.A. - Wheeling
(Photograph) (Photograph)
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Wellsburg Office Bellaire Office
Wellsburg, WV Bellaire, OH
(Photograph)
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Woodsdale Office
Wheeling, WV
(Photograph) (Photograph)
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Warwood Office Moundsville Kroger Store Office
Wheeling, WV Moundsville, WV
Progressive Bank, N.A. - Buckhannon
(Photograph) (Photograph)
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Buckhannon Office Weston Office
Buckhannon, WV Weston, WV
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First West Virginia Bancorp, Inc. and Subsidiaries
Corporate Information
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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
10, 2001, 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, 2000, may
obtain a copy of the Corporation's 2000 Form 10-K Report (to be filed with
the Securities and Exchange Commission before March 31, 2001) by writing
to the Secretary, First West Virginia Bancorp, Inc., 875 National Road,
Wheeling, WV 26003
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