EXHIBIT 13.1
Annual Report to Shareholders
(FIRST WEST VIRGINIA BANCORP LETTERHEAD)
P.O. Box 6671
Wheeling, WV 26003
TO OUR SHAREHOLDERS:
It is with great pleasure that I present to you the 2001 Annual Report of
First West Virginia Bancorp, Inc. Consolidated net income was $2,412,403 or
$1.57 per share for the year ended December 31, 2001, a 3.7% increase over the
$2,325,906 or $1.51 per share reported at December 31, 2000. The Holding
Company ended the year 2001 with total assets of $232,030,125, an increase of
11.6% over the $207,893,209 reported in 2000. Total stockholders' equity at
December 31, 2001 was $20,248,968, an increase of 11.1% over the prior year.
The book value per share was $13.16 at December 31, 2001 as compared to $11.85
a year earlier. The Board of Directors declared and paid cash dividends of
$.68 per share compared to $.64 per share during 2000, which represents an
increase of 6.7% over the prior year.
As evidence of the Holding Company's continued commitment to grow and
develop in new and existing market areas, Progressive Bank, N.A., subsidiary
bank of First West Virginia Bancorp, Inc., opened two full service branch
locations during the first quarter of 2001. Upon completion of the purchase
transactions with United National Bank, Progressive Bank, N.A. commenced
operations in New Martinsville, West Virginia and opened a second full service
office in Moundsville, West Virginia. Progressive Bank, N.A. currently is
preparing for the grand opening of its Bethlehem office located at 1090 East
Bethlehem Boulevard in Wheeling, West Virginia. The Board of Directors has also
approved plans to purchase the loans, deposits, and other assets of the New
Martinsville office of Wheeling National Bank located at 631 Third Street, New
Martinsville, West Virginia. The acquisition of this office is expected to be
completed during the first quarter of 2002 and will add approximately $16.5
million in assets to our Company. This transaction further represents an
opportunity for Progressive Bank, N.A. to increase its presence and commitment
in the Wetzel County, West Virginia and surrounding market areas.
In our efforts to provide competitive products and quality services to our
banking customers, the subsidiary banks of the Holding Company will introduce a
new deposit product to add to our existing product line during the first
quarter of 2002. The product is a new savings account known as the "Super
Savings" account. The "Super Savings" account will feature a tiered interest
rate and will enhance our existing deposit products.
This year it is with deep sorrow that we mention the passing of George F.
Beneke, Chairman Emeritus and longtime director of First West Virginia Bancorp,
Inc. Mr. Beneke also served as a member of the Board of Directors of
Progressive Bank, N.A. since 1958. Mr. Beneke made a significant contribution
to the progress of our corporation and we will miss his gentle manner and wise
counsel.
My sincere gratitude to our officers and employees who are such a vital
part of our future plans, our Board of Directors for their unfailing
leadership, and our customers and shareholders for their continued loyalty.
The combination of exceptional people, quality service and financial strength
prepares us to capitalize on the opportunities and challenges which lie ahead.
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,
------------------------------------------------------------
2001 2000 1999 1998 1997
--------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 14,772 $ 14,869 $ 13,207 $ 12,452 $11,507
Total interest expense 6,422 7,155 5,602 5,324 4,745
Net interest income 8,350 7,714 7,605 7,128 6,762
Provision for loan losses 573 436 348 256 131
Total other income 942 880 1,073 787 639
Total other expenses 5,324 4,816 4,740 4,674 4,377
Income before income taxes 3,395 3,341 3,590 2,985 2,893
Net income 2,412 2,326 2,450 2,033 1,931
PER SHARE DATA /(1)/
Net income $ 1.57 $ 1.51 $ 1.59 $ 1.32 $1.25
Cash dividends declared .68 .64 .54 .48 .43
Book value per share 13.16 11.85 10.44 10.05 9.18
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 118,224 $ 112,579 $ 105,775 $ 99,345 $ 86,609
Investment securities 73,639 69,548 59,716 47,911 51,203
Deposits - Interest Bearing 168,820 155,172 141,768 127,520 120,589
Stockholders' equity 18,902 17,448 16,087 14,697 13,400
Total Assets 217,006 203,529 183,436 164,630 153,290
BALANCE SHEET
Investments $ 82,202 $ 72,242 $ 59,394 $ 54,080 $ 44,883
Loans 120,944 114,053 110,489 103,555 95,374
Other Assets 28,884 21,598 19,290 13,760 15,886
---------- --------- ---------- --------- ---------
Total Assets $ 232,030 $ 207,893 $ 189,173 $ 171,395 $156,143
========= ========= ========= ========= =========
Deposits $ 203,772 $ 173,669 $ 161,558 $ 147,785 $137,045
Federal funds purchased and
Repurchase Agreements 6,538 14,526 10,274 6,994 4,075
Other Liabilities 1,471 1,473 1,285 1,155 894
Shareholders' Equity 20,249 18,225 16,056 15,461 14,129
---------- --------- ---------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 232,030 $ 207,893 $ 189,173 $ 171,395 $156,143
========= ========= ========= ========= =========
SELECTED RATIOS
Return on average assets 1.11% 1.14% 1.34% 1.23% 1.26%
Return on average equity 12.76% 13.33% 15.23% 13.83% 14.41%
Average equity to average assets 8.71% 8.57% 8.77% 8.93% 8.74%
Dividend payout ratio /(1)/ 43.31% 42.38% 33.96% 36.36% 34.40%
Loan to Deposit ratio 59.35% 65.67% 68.39% 70.07% 69.59%
/(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.
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2
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, Moundsville, and New Martinsville, 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, 2001, 2000 and 1999. 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 $2,412,403 or $1.57 per share for
the year ended December 31, 2001 as compared to $2,325,906 or $1.51 per share
for the year ended December 31, 2000. The 3.7% increase in earnings during 2001
over 2000 was primarily attributed to increased net interest income and
noninterest income, partially offset by increased operating expenses and the
provision for loan losses.
Operational earnings were improved with net interest income increasing $636,270
or 8.2%, to $8,350,144 during 2001 as compared to the same period in 2000. The
increase in net interest income primarily results from a decrease in the
average interest rates paid on interest bearing liabilities.
The return on average assets (ROA), which measures the effectiveness of asset
utilization to produce net income, was 1.11% in 2001 and 1.14% in 2000. The
return on average equity (ROE), which measures the return on the stockholders'
investment, was 12.76% in 2001 and 13.33% in 2000.
The Holding Company ended the year 2001 with total assets of $232,030,125 an
increase of 11.6% over the $207,893,209 reported for the year ended December
31, 2000. Loans net of reserves increased in 2001 by $6,546,908 to
$119,297,867, as compared to $112,750,959 reported at December 31, 2000. Total
deposits increased in 2001 by $30,103,376, from $173,668,578 at December 31,
2000 to $203,771,954 at December 31, 2001, primarily due to the increase in
interest bearing deposits.
The allowance for loan losses amounted to $1,645,972 at December 31, 2001 or
1.4% of total loans, compared to $1,302,044 or 1.1% of total loans at December
31, 2000. Non-performing assets were $1,317,000 at December 31, 2001, as
compared to $2,283,000 at December 31, 2000.
The Board of Directors declared and paid cash dividends of $.68 per share
during 2001 as compared to $.64 in 2000, an increase of 6.7% over the prior
year.
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, 2001, 2000, and 1999.
Net interest income was $8,350,144 in 2001, an increase of $636,270 or 8.3%,
from 2000, following an increase in 2000 of $109,155 or 1.4% from 1999. The
increase in net interest income for 2001 was primarily due to the decline in
the interest paid on interest bearing liabilities. During 2000, net interest
income increased due to the increase in investment securities and the growth in
the loan portfolio which were partially offset by the increase in interest
expense on savings and time deposits.
Interest and fees on loans and lease financing increased $201,215 or 2.0% from
2000 to 2001 and $547,098 or 5.9% from 1999 to 2000. The increased interest
income on loans and lease financing for both years resulted primarily from
increases in the average loan volume of $5,645,000 in 2001 and $6,804,000 in
2000. Increases in commercial loans and non-rated industrial development
obligations primarily contributed to the growth in loans in 2001. During 2000,
increases in residential real estate loans primarily contributed to the loan
growth. The average yield on loans continued to decline in 2001, decreasing
from 8.80% in 1999 to 8.75% in 2000 to 8.50% in 2001.
- --------------------------------------------------------------------------------
3
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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,
2001, 2000, and 1999. Average balance sheet information as of December 31,
2001, 2000, and 1999 was compiled using the daily average balance sheet. Loan
fees and unearned discounts were included in income for average rate
calculation purposes. Average yields on investment securities available for
sale have been calculated based on amortized cost. Non-accrual loans were
included in the average balance computations; however, no interest was included
in income subsequent to the non-accrual status classification.
December 31, 2001 December 31, 2000 December 31, 1999
----------------------------- ------------------------------ ----------------------------
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 $ 29,143 $ 1,624 5.57% $ 42,503 $ 2,675 6.29% $ 40,510 $ 2,424 5.98%
Mortgage backed securities 22,952 1,454 6.33% 12,123 778 6.42% 5,773 375 6.50%
Obligations of states and
political subdivisions 15,578 704 4.52% 12,431 576 4.63% 11,546 507 4.39%
Other securities 5,966 353 5.92% 2,491 162 6.50% 1,887 113 5.99%
------- ------- ------- ------- ------- ------- ------- ----- -------
Total Investment securities: 73,639 4,135 5.62% 69,548 4,191 6.03% 59,716 3,419 5.73%
Interest bearing deposits 7,869 295 3.75% 6,375 398 6.24% 3,861 195 5.05%
Federal funds sold 6,594 241 3.65% 6,041 380 6.29% 4,923 244 4.96%
Loans, net of unearned income 118,224 10,054 8.50% 112,579 9,853 8.75% 105,775 9,306 8.80%
Other earning assets 707 47 6.65% 702 47 6.70% 689 43 6.24%
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total earning assets 207,033 14,772 7.14% 195,245 14,869 7.62% 174,964 13,207 7.55%
Cash and due from banks 4,811 4,602 4,628
Bank premises and equipment 3,786 2,777 2,994
Other assets 2,893 2,148 2,005
Allowance for possible loan losses (1,517) (1,243) (1,155)
-------- -------- --------
Total Assets $217,006 $ 203,529 $183,436
======== ======== ========
LIABILITIES
Certificates of deposit $ 77,214 $ 4,273 5.53% $ 73,128 $ 4,065 5.56% $ 67,309 $ 3,535 5.25%
Savings deposits 64,360 1,579 2.45% 56,940 2,080 3.65% 48,752 1,368 2.81%
Interest bearing demand deposits 27,246 280 1.03% 25,104 374 1.49% 25,707 406 1.58%
Federal funds purchased and
Repurchase agreements 10,034 290 2.89% 14,067 637 4.53% 9,012 293 3.25%
-------- ------- ----- ------- -------- ------- ------- -------- ------
Total interest bearing liabilities 178,854 6,422 3.59% 169,239 7,156 4.23% 150,780 5,602 3.72%
Demand deposits 17,844 15,301 15,241
Other liabilities 1,406 1,541 1,328
-------- ------- --------
Total Liabilities 198,104 186,081 167,349
STOCKHOLDERS' EQUITY 18,902 17,448 16,087
-------- ------- --------
Total Liabilities
and Stockholders' Equity $217,006 $ 203,529 $183,436
======== ========= ========
Net yield on earning assets $ 8,350 4.03% $ 7,713 3.95% $ 7,605 4.35%
======= ====== ======= ====== ======= =====
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 2001, 2000, and 1999,
respectively. The effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 15,578 $ 1,119 7.18% $ 12,431 $ 925 7.44% $ 11,546 $ 845 7.32%
Loans 118,224 10,301 8.71% 112,579 10,012 8.89% 105,775 9,434 8.92%
========= ======= ===== ========= ======= ====== ======= ======= =====
Total earning assets $ 207,033 $15,434 7.45% $ 195,245 $15,377 7.88% $174,964 $13,673 7.81%
========= ======= ===== ========= ======= ====== ======= ======= =====
Taxable equivalent net yield on
earning assets $ 9,012 4.35% $ 8,221 4.21% $ 8,071 4.61%
======= ====== ======= ====== ======= =====
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4
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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, 2001, 2000, and 1999 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.
2001 Compared to 2000 2000 Compared to 1999 1999 Compared to 1998
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 $ (841) $ (210) $(1,051) $ 119 $ 132 $ 251 $ 566 $ (101) $ 465
Mortgage backed securities 695 (19) 676 386 17 403 (73) 8 (65)
Obligations of states and
political subdivisions 146 (18) 128 39 30 69 159 (34) 125
Other securities 226 (35) 191 36 13 49 33 (5) 28
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total investment securities 226 (282) ( 56) 580 192 772 685 (132) 553
Interest bearing deposits 93 (196) (103) 127 76 203 66 (8) 58
Federal funds sold 35 (174) (139) 55 81 136 (63) (24) (87)
Loans, net of unearned income 494 (293) 201 599 (52) 547 588 (360) 228
Other earning assets -- -- -- 1 3 4 3 1 4
-------- ------- ------- -------- -------- ------- ------- ----- --------
Total interest earned 848 (945) (97) 1,362 300 1,662 1,279 (523) 756
-------- ------- ------- -------- -------- ------- ------- ----- --------
INTEREST EXPENSE ON:
- -----------------------
Time deposits 227 (19) 208 305 225 530 392 (213) 179
Savings deposits 271 (772) (501) 230 482 712 156 (58) 98
Interest bearing demand deposits 32 (126) (94) (9) (23) (32) 37 (102) (65)
Federal funds purchased and
Repurchase agreements (183) (164) (347) 164 180 344 83 (17) 66
-------- ------- ----- ------- -------- ------- ------- -------- ------
Total interest paid 347 (1,081) (734) 690 864 1,554 668 (390) 278
-------- ------- ----- ------- ------- ------- ------- -------- ------
Net interest differential $ 501 $ 136 $ 637 $ 672 $ (564) $ 108 $ 611 $ (133) $ 478
======== ======== ======== ========= ========= ======== ======== ======== ======
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 2001, 2000, 1999, and 1998,
respectively.
Obligations of states and
political subdivisions:
Investment securities $ 234 $ (40) $ 194 $ 65 $ 15 $ 80 $ 265 $ (57) $ 208
Loans 502 (213) 289 607 (29) 578 597 (378) 219
========= ======= ====== ======== ======== ====== ======= ======= ========
Total interest earned $ 944 $ (887) $ 57 $ 1,396 $ 308 $1,704 $1,394 $ (564) $ 830
========= ======= ====== ======== ======== ====== ======= ======= ========
Net interest differential $ 597 $ 194 $ 791 $ 706 $ (556) $ 150 $ 726 $ (174) $ 552
========= ======= ====== ======== ======== ====== ======= ======= ========
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5
Net Interest Income Continued
Interest income on investment securities during 2001 decreased $55,931 or 1.3%
over 2000. The decline in the average rates earned on investment securities
offset in part by the increased average volume primarily contributed to the
decreased interest earned in 2001. The average yield on investment securities
decreased .41%, from 6.03% in 2000 to 5.62% in 2001. The average volume of
investment securities increased $4,091,000 in 2001. During 2000, 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 in 2000 increased $772,780 or 22.6% over 1999. The average yield on
investment securities increased .30%, from 5.73% in 1999 to 6.03% in 2000.
Interest expense in 2001 decreased $733,460 or 10.3% from 2000, compared to an
increase in 2000 of $1,553,565 or 27.7% from 1999. The decrease in interest
expense in 2001 resulted primarily from the decrease in the rates paid on
interest bearing liabilities, offset by the increased deposit growth. The
increase in interest expense for 2000 was primarily the result of deposit
growth. During 2001, the average yield paid on interest bearing liabilities
decreased .64%, from 4.23% in 2000 to 3.59% in 2001, and followed an increase
of .51%, from 3.72% in 1999 to 4.23% in 2000. The decrease in the average
yield on interest bearing liabilities during 2001 was primarily the result of a
decrease in the interest rates paid on savings deposits and interest bearing
demand deposits. The increase in the average yield on interest bearing
liabilities during 2000 was primarily the result of an increase in the interest
rates paid on savings deposits and time deposits. The average volume of
interest bearing deposits increased $13,648,000 or 8.8% as compared to 2000,
and increased $13,404,000 or 9.5% in 2000 as compared to 1999. Average volume
increases of interest bearing deposits during 2001 and 2000 were primarily the
result of the growth in time deposits and savings 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 4.35%
for 2001, as compared to 4.21% and 4.61% earned during 2000 and 1999,
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 $60,372 in 2001, up 11.3%, from 2000, as
compared to an increase of 5.2% from 1999 to 2000. The increases in service
charges in both 2001 and 2000 were primarily due to the 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 2001, the
subsidiary banks accounted for securities gains of $7,867 and securities losses
of $9,133 and were attributable to sales of securities available for sale.
Additionally, the Holding Company accounted for securities gains of $21,018 and
securities losses of $11,859 and were attributable to sales of marketable
equity securities. During 2000, the Holding Company recorded securities gains
of $37,944 and securities losses of $14,508 and were sales of marketable equity
securities. In 1999, the subsidiary banks accounted for securities gains of
$14,721 and securities losses of $13,086 and were 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.
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 2001, other
operating income was $338,338, an increase of $17,064 or 5.3% over 2000, and
follows an increase of $70,966, or 28.3%, over 1999. In 2001, the increase in
ATM charges primarily contributed to the increase in other operating income.
The increase in other operating income during 2000 results primarily from an
increase in other credit card income and an increase in credit life
commissions.
Non-Interest Expense
Salary and employee benefits represent the largest component of noninterest
expense. Salary and employee benefits increased $186,833 or 7.4% in 2001 as
compared to the same period in 2000. The increase in salary and employee
benefits in 2001 was primarily due to the hiring of additional personnel and
normal annual merit adjustments. During 2000, salary and employee benefits
increased $105,695 or 4.3% over 1999. The increase in salary and employee
benefits in 2000 was primarily due to normal annual merit adjustments.
Net occupancy expense increased $58,559 or 7.6% in 2001 over 2000, following an
increase of $3,316 or .4% in 2000 over 1999. Occupancy expense increased
during 2001 primarily due to increased overhead expenses with the opening of
two branch offices and other real estate expenses.
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6
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 increased $262,763 or 17.5% in 2001 over 2000 after
decreasing $32,940 or 2.1% in 2000. The increase in other operating expenses
during 2001 was primarily due to the increase in other expenses, other taxes,
service expense, stationery and supplies expense and postage expenses. During
2000, the decrease in other operating expenses 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.
Income Taxes
Income tax expense for the period ended December 31, 2001 was $982,283, a
decrease of $33,000 over 2000. Income tax expense decreased primarily due to
an increase in tax exempt income in 2001 over 2000. Components of the income
tax expense for December 31, 2001 were $802,576 for federal taxes and $179,707
for West Virginia corporate net income taxes. Income tax expense for the
period ended December 31, 2000 decreased by $124,233 over 1999. The decrease
was primarily due to the decrease in pre-taxable income of $248,708 in 2000
over 1999.
For federal income tax purposes, tax-exempt income is based on qualified state,
county, and municipal bonds and loans. Tax-exempt income was $992,879 in 2001;
$761,821 in 2000; and $698,249 in 1999. 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 $1,405,000 in 2001; $1,631,000 in 2000; and $1,592,000 in 1999.
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, 2001,
2000 and 1999. Additional information regarding income taxes is contained in
Note 7 to the Consolidated financial statements.
Balance Sheet Analysis
Investments
Investment securities increased $9,959,980 or 13.8% from $72,242,181 at
December 31, 2000, to $82,202,161 at December 31, 2001 and followed an increase
of $12,847,557 or 21.6% from $59,394,624 at December 31, 1999 to $72,242,181 at
December 31, 2000. The increases in investment securities at December 31, 2001
and 2000 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 81.0% of total securities at December 31, 2001, as
compared to 84.3% at December 31, 2000. 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 $11,984,295 or 19.5% from 2000, and
represented 89% of the investment portfolio at December 31, 2001. 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 decreased $2,024,315 or 18.6% from 2000 and represented 11% of the
investment portfolio as of December 31, 2001. The decrease in the held to
maturity securities was primarily the result of maturities and calls of tax
exempt municipal securities which were reinvested in available for sale
securities.
7
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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, 2001 and December 31, 2000 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, 2001 December 31, 2000
----------------------------------------------- --------------------------------------------
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 $ -- --% $ 12,264 2.89 % $ -- -- % $ 8,843 6.13 %
After One But
Within Five Years -- -- 15,284 4.38 -- -- 24,422 6.20
After Five But
Within Ten Years -- -- 2,521 6.43 -- -- 9,782 6.57
After Ten Years -- -- 1,284 3.03 -- -- -- --
---------- ----- --------- ---- -------- ---- --------- ----
-- -- 31,353 3.91 -- -- 43,047 6.27
States & Political Subdivisions
Within One Year 960 6.46 1,499 4.65 2,008 6.74 -- --
After One But
Within Five Years 4,043 6.21 4,914 5.43 3,745 6.28 985 7.39
After Five But
Within Ten Years 3,851 6.65 1,260 6.30 5,029 6.52 1,066 6.93
After Ten Years -- -- 244 6.66 96 7.82 -- --
---------- ----- --------- ---- -------- ---- --------- ----
8,854 6.43 7,917 5.46 10,878 6.49 2,051 7.15
Corporate Debt Securities
Within One Year -- -- 1,251 2.85 -- -- 100 8.44
After One But
Within Five Years -- -- 5,871 5.49 -- -- 492 7.36
After Five But
Within Ten Years -- -- 964 7.05 -- -- -- --
---------- ----- --------- ---- -------- ---- --------- -----
-- -- 8,086 5.27 -- -- 592 7.54
Mortgage-Backed Securities -- -- 25,535 5.75 -- -- 15,286 7.01
Equity Securities -- -- 457 2.67 -- -- 388 2.94
---------- ----- --------- ---- -------- ---- --------- -----
Total $ 8,854 6.43 % $ 73,348 4.86 % $ 10,878 6.49 % $ 61,364 6.47%
========== ===== ========= ==== ======== ==== ========= ====
- -------------------------------------------------------------------------------
8
Investments Continued
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 increased by $989,018 at
December 31, 2001 and decreased by $60,128 at December 31, 2000. The market
value of securities classified as held to maturity was above book value by
$158,100 and by $42,633 at December 31, 2001 and 2000, respectively.
Loans
Loans, net of unearned income, increased $6,890,836 or 6.0% from 2000, and
follows an increase in 2000 of $3,564,571 or 3.2% from 1999. The loan growth
during 2001 was attributed primarily to increases in commercial loans and other
loans which increased approximately $6,178,000 and $3,145,000, respectively
offset by a decrease in installment loans of $4,379,000. In 2000, the loan
growth was attributed primarily to increases in residential real estate loans
which increased approximately $3,062,000. Commercial loans increased during
2001, primarily in commercial real estate loans, due to refinances by new and
existing customers. Other loans also increased during 2001, primarily in non
rated industrial development obligations.
Real estate residential loans which include real estate construction, real
estate farmland, and real estate residential loans comprised thirty-seven
percent (37%) of the loan portfolio. Commercial loans which include real estate
secured by non-farm, non-residential and commercial and industrial loans
comprised forty percent (40%) of the loan portfolio. Installment loans
comprised sixteen percent (16%) of the loan portfolio. Other loans which
include non-rated industrial development obligations, direct financing leases
and other loans comprised seven percent (7%) of the loan portfolio. The changes
in the composition of the loan portfolio from 2000 to 2001 were a 3% increase
in other loans, a 3% increase in commercial loans, a 5% decrease in installment
loans and a 1% decrease in real estate residential loans. From 1999 to 2000,
the changes in the composition of the loan portfolio 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.
Non-performing assets include non-accrual loans on which the collectibility of
the full amount of interest is uncertain; loans which have been renegotiated to
provide for a reduction or deferral of interest on principal because of a
deterioration in the financial position of the borrower; loans past due ninety
days or more as to principal or interest; and other real estate owned. A
five-year summary of nonperforming assets is presented in Table Six.
Total non-performing loans were $1,317,000 at December 31, 2001 as compared
with $2,283,000 at December 31, 2000. Total non-performing loans decreased
$966,000 in 2001, as compared to the increase of $1,391,000 in 2000. The
decrease in non-performing loans in 2001 was primarily due to a decline in
loans 90 days past due or more. 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 $1,184,000 or 1.0% of total loans
outstanding as of December 31, 2001, as compared to $1,248,000 or 1.1% at
December 31, 2000. The non-accrual loans in 2001 and 2000 primarily were
commercial loans which are secured by properties believed to have adequate
values to cover the outstanding loan balances. Loans past due 90 days or more
were $73,000 or .06% of total loans outstanding as of December 31, 2001, as
compared to $904,000 or .8% at December 31, 2000. Loans past due 90 days or
more decreased $831,000 during 2001, after increasing $585,000 during 2000.
There were no loans classified as renegotiated at December 31, 2001 and 2000.
Other real estate amounted to $60,000 at December 31, 2001. Other real estate
owned decreased $71,000 in 2001 over 2000 due to the sale of the properties by
a subsidiary bank. 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 1.4% and 1.1% of outstanding
loans as of December 31, 2001 and 2000, respectively. Net loan charge-offs were
$229,072 in 2001, compared to $282,176 in 2000 and $323,192 in 1999. The net
loan charge-offs in 2001 and 2000 were primarily installment and commercial
loans. The net loan charge-offs in 1999 were primarily 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 $573,000 for the year ended December
31, 2001 compared to $436,500, and $348,000 at December 31, 2000 and 1999,
respectively. The increased loan growth combined with the increase in net
charge-offs and in nonperforming assets in 2001 and 2000 has 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.
- -------------------------------------------------------------------------------
9
- -------------------------------------------------------------------------------
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,
2001 and December 31, 2000 (in thousands):
December 31, 2001
------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
-------------- ----------- -----------
Commercial $ 966 $ 6,465 $ 6,458
Real Estate - construction 165 6 224
---------- ---------- ----------
Total $ 1,131 $ 6,471 $ 6,682
========== ========== ==========
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
========== ========== ==========
The following table presents an analysis of fixed and variable rate loans as of
December 31, 2001 and December 31, 2000 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands):
December 31, 2001
------------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
-------------- ------------ ------------
Fixed Rates $ 1,095 $ 4,585 $ 1,557
Variable Rates 36 1,886 5,125
---------- -------- ----------
Total $ 1,131 $ 6,471 $ 6,682
========== ========== ==========
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
========== ========== ===========
- -------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------
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,
---------------------------------------------------------
2001 2000 1999 1998 1997
Past Due 90 Days or More:
Real Estate - residential $ 21 $ 48 $ 66 $ 76 $ 45
Commercial 26 711 11 4 70
Installment 26 145 242 188 104
-------- -------- --------- ------- --------
$ 73 $ 904 $ 319 $ 268 $ 219
-------- -------- --------- ------- --------
Non-accrual:
Real Estate - residential $ 27 $ 14 $ 17 $ 106 $ 139
Commercial 1,124 1,202 440 184 353
Installment 33 32 116 106 48
-------- -------- --------- ------- --------
$ 1,184 $ 1,248 $ 573 $ 396 $ 540
-------- -------- --------- ------- --------
Other Real Estate $ 60 $ 131 $ -- $ -- $ 80
-------- --------- --------- ------- --------
Total non-performing assets $ 1,317 $ 2,283 $ 892 $ 664 $ 839
======== ======== ========= ======= ========
Total non-performing assets
to total loans and
other real estate 1.09% 2.00% 0.81% 0.64% 0.88%
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 $96,600 and $42,200 for
the periods ended December 31, 2001 and 2000, respectively.
As of December 31, 2001, 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.
- -------------------------------------------------------------------------------
11
- -------------------------------------------------------------------------------
Allowance for Loan Losses Continued
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 2002 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.
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 $203,771,954 at December 31, 2001
as compared to $173,668,578 at December 31, 2000, an increase of 17.3%, and
follows an increase of 7.5% between 2000 and 1999. Approximately $9.6 million
or 5.5% of the increase in deposits during 2001 primarily was due to the
acquisition of the deposits of United National Bank's New Martinsville branch
office by the subsidiary bank. The growth in total deposits during 2001 was
primarily in interest bearing deposits. The growth in total deposits during
2000 was primarily in savings and time deposits. Savings deposits increased by
$9,601,429 or 16.0% during 2001, and follows an increase of $7,071,251 or 13.4%
in 2000. The increase in savings deposits was mainly due to the demand for the
Progressive Gold money market product by depositors. Time deposits grew by
$8,747,165 or 12.0% in 2001, and follows an increase of $3,207,025 or 4.6% in
2000. Time deposits of $100,000 or more increased approximately $4,130,000 at
December 31, 2001 as compared to December 31, 2000. The increase in time
deposits in 2001 was primarily the result of the subsidiary bank's purchase of
deposits combined with the special promotions offered by the subsidiary banks
throughout the year. Interest bearing demand deposits increased $7,397,398 or
30.8% in 2001. At December 31, 2001, 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. There was no
change in the deposit mix from December 31, 2000 to December 31, 2001.
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 $6,537,648 at December 31, 2001, a decrease of $7,988,680 over
2000. The decrease in repurchase agreements in 2001 was primarily due to the
loss of one commercial customer. There were no Federal funds purchased as of
December 31, 2001 and 2000.
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 7.5% in 2001 entirely from current
earnings after quarterly dividends, and an increase of 3.6% resulting from the
effect of the change in the net unrealized gain on securities available for
sale. The increase in stockholders' equity in 2001 follows an increase of 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
gain on securities available for sale. Stockholders' equity amounted to 8.7%
and 8.8% of total assets at the end of 2001 and 2000, 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 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.
- -------------------------------------------------------------------------------
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,
---------------------------------------------------------------
2001 2000 1999 1998 1997
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,302 $ 1,148 $ 1,123 $ 1,218 $ 1,160
Loans Charged Off:
Real Estate - residential - 20 14 65 18
Commercial 95 107 16 134 -
Installment 164 189 315 173 67
--------- --------- ----------- --------- ---------
259 316 345 372 85
Recoveries:
Real Estate - residential 4 - - 5 -
Commercial 12 5 - - 3
Installment 14 29 22 16 9
--------- --------- ----------- --------- ---------
30 34 22 21 12
Net Charge-offs 229 282 323 351 73
Additions Charged to Operations 573 436 348 256 131
--------- --------- ---------- --------- ---------
Balance at end of period: $ 1,646 $ 1,302 $ 1,148 $ 1,123 $ 1,218
========= ========= ========== ========= =========
Average Loans Outstanding $ 118,224 $ 112,579 $ 105,775 $ 99,345 $ 86,609
========= ========= ========== ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period 0.19% 0.25% 0.31% 0.35% 0.08%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.36% 1.14% 1.04% 1.08% 1.28%
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.
- -------------------------------------------------------------------------------
13
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, 2001 ( 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,
----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ---------------- ----------------- --------------- ------------------
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 $ 263 37.3% $ 241 37.9% $ 238 36.2% $ 208 34.2% $ 202 34.6%
Commercial 821 40.0 549 37.0 490 38.7 490 37.8 622 38.0
Installment 541 16.1 492 20.9 400 22.2 374 23.8 343 23.6
Others 21 6.6 20 4.2 20 2.9 20 4.2 20 3.8
Unallocated -- -- -- -- -- -- 31 -- 31 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $1,646 100.0% $1,302 100.0% $1,148 100.0% $1,123 100.0% $1,218 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
- -------------------------------------------------------------------------------
14
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 $22,162,000, which indicates
the corporation's earning assets are more than interest bearing liabilities at
December 31, 2001. 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, 2001
(less (greater Non-
than) 3 4 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
------- ------- ------ ------- ------- -------
ASSETS:
Federal funds sold $ 7,632 $ $ $ $ $ 7,632
Investment securities 25,843 17,929 21,856 15,584 990 82,202
Loans 28,346 35,047 31,841 24,645 1,065 120,944
Other assets 9,075 13,823 22,898
Allowance for loan losses (1,646) (1,646)
-------- -------- ------- ------- ------- --------
Total assets $ 70,896 $ 52,976 $53,697 $40,229 $14,232 $232,030
======== ======== ======= ======= ======= ========
LIABILITIES AND CAPITAL
NOW and savings $ 1,506 $ 5,356 $ 7,067 $47,276 $ $ 61,205
MMDA's 39,793 39,793
Certificates of deposit * $100,000 10,706 27,157 18,172 4,277 60,312
Certificates of deposit ** $100,000 3,876 6,778 10,023 909 21,586
Noniterest bearing demand deposits 20,876 20,876
Other liabilities 1,471 1,471
Repurchase agreements 6,538 6,538
Stockholders' equity 20,249 20,249
-------- -------- ------- ------- ------- --------
Total liabilities and capital $ 62,419 $ 39,291 $35,262 $52,462 $42,596 $232,030
======== ======== ======= ======= ======= ========
GAP 8,477 13,685 18,435 (12,233) (28,364)
GAP/ Total Assets 3.65% 5.90% 7.95% (5.27%) (12.22%)
Cumulative GAP 8,477 22,162 40,597 28,364 0
Cumulative GAP/Total Assets 3.65% 9.55% 17.50% 12.22% 0.00%
The above analysis contains repricing and maturity assumptions and estimates
used by management.
- -------------------------------------------------------------------------------
* represents less than
** represents greater than
15
Interest Rate Risk Continued
The Company's subsidiary banks use an asset/liability model to measure the
impact of changes in interest rates on net interest income on a periodic basis.
Assumptions are made to simulate the impact of future changes in interest rates
and/or changes in balance sheet composition. The effect of changes in future
interest rates on the mix of assets and liabilities may cause actual results to
differ from simulated results. Guidelines established by the Company's
subsidiary banks provide that the estimated net interest income may not change
by more than 10% in a one year period given a +/- 200 basis point parallel
shift in interest rates. Excluding the potential effect of interest rate
changes on assets and liabilities of the Holding Company which are not deemed
material, the anticipated impact on net interest income of the subsidiary banks
at December 31, 2001 were as follows: given a 200 basis point increase scenario
net interest income would be increased by approximately 4.5%, and given a 200
basis point decrease scenario net interest income would be reduced by
approximately 9.4%. Under both interest rate scenarios the subsidiary banks
were within the established guideline.
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 $73,348,310 classified
as available for sale at December 31, 2001. 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,
2001, the subsidiary banks had unused lines of credit available with the FHLB
in the aggregate amount of approximately $10,446,000. There were no borrowings
outstanding pursuant to these agreements as of December 31, 2001.
At December 31, 2001 and December 31, 2000, the Holding Company had outstanding
loan commitments and unused lines of credit totaling $19,511,000 and
$14,307,000, respectively. As of December 31, 2001, management placed a high
probability for required funding within one year of approximately $14,540,000.
Approximately $3,491,000 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.
Stock Prices
Low High
2001
4th Quarter $ 15.15 $ 18.85
3rd Quarter $ 15.00 $ 17.85
2nd Quarter $ 13.25 $ 15.70
1st Quarter $ 12.60 $ 14.38
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
- -------------------------------------------------------------------------------
16
- -------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- -------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter
------------- ------------- ------------- ------------
Total interest income $ 3,780,886 $ 3,790,938 $ 3,672,678 $ 3,527,709
Total interest expense 1,792,532 1,675,215 1,592,311 1,362,009
Net interest income 1,988,354 2,115,723 2,080,367 2,165,700
Provision for loan losses 141,000 141,000 141,000 150,000
Investment securities gain 1,647 6,244 0 2
Total other income 205,944 243,005 257,633 227,535
Total other expenses 1,216,328 1,376,815 1,302,088 1,429,237
Income before income taxes 838,617 847,157 894,912 814,000
Net income 582,165 603,218 638,858 588,162
Net income per share .38 .39 .42 .38
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 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 .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
/(1)/ Adjusted for the 2 percent common stock dividend to stockholders of
record as of December 1, 2000, and 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.
- -------------------------------------------------------------------------------
17
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
SNODGRASS
Certified Public Accountants and Consultants
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, 2001 and 2000, 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,
2001. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First West Virginia Bancorp,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of its
operations, and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/S. R. Snodgrass, A.C.
Wheeling, West Virginia
January 25, 2002
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile:
304-233-3062
18
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
------------ ------------
ASSETS
Cash and due from banks $ 6,419,402 $ 4,944,650
Due from banks - interest bearing 9,075,314 7,491,600
------------ ------------
Total cash and cash equivalents 15,494,716 12,436,250
Federal funds sold 7,632,000 4,396,000
Investment securities:
Available-for-sale (at fair value) 73,348,310 61,364,015
Held-to-maturity (fair value of $9,011,951
and $10,920,799, respectively) 8,853,851 10,878,166
Loans 120,943,839 114,053,003
Less allowance for possible loan losses (1,645,972) (1,302,044)
------------ ------------
Net loans 119,297,867 112,750,959
Premises and equipment, net 4,005,353 2,754,739
Accrued income receivable 1,252,143 1,543,124
Other assets 2,145,885 1,769,956
------------ ------------
Total assets $232,030,125 $207,893,209
============ ============
LIABILITIES
Noninterest bearing deposits:
Demand $ 20,875,835 $ 16,518,451
Interest bearing deposits:
Demand 31,452,855 24,055,457
Savings 69,545,369 59,943,940
Time 81,897,895 73,150,730
------------ ------------
Total deposits 203,771,954 173,668,578
Federal funds purchased and repurchase agreements 6,537,648 14,526,328
Accrued interest on deposits 519,399 598,235
Other liabilities 952,156 874,968
------------ ------------
Total liabilities 211,781,157 189,668,109
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - 2,000,000 shares
authorized at $5 par value:
1,538,443 shares issued at
December 31, 2001 and December 31, 2000 7,692,215 7,692,215
Surplus 4,982,606 4,982,606
Retained earnings 6,954,229 5,587,967
Accumulated other comprehensive income (loss) 619,918 (37,688)
------------ ------------
Total stockholders' equity 20,248,968 18,225,100
------------ ------------
Total liabilities and stockholders' equity $232,030,125 $207,893,209
============ ============
The accompanying notes are an integral part of the financial statements.
19
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans
and lease financing:
Taxable $ 9,683,796 $ 9,614,503 $ 9,114,144
Tax-exempt 370,335 238,413 191,674
Investment securities:
Taxable 3,512,719 3,667,724 2,911,839
Tax-exempt 622,544 523,470 506,575
Dividends 35,613 35,677 32,185
Other interest income 306,156 409,433 206,733
Interest on federal funds sold 241,048 380,181 243,531
----------- ----------- -----------
Total interest income 14,772,211 14,869,401 13,206,681
----------- ----------- -----------
INTEREST EXPENSE
Deposits 6,132,180 6,518,858 5,309,346
Other borrowings 289,887 636,669 292,616
----------- ----------- -----------
Total interest expense 6,422,067 7,155,527 5,601,962
----------- ----------- -----------
Net interest income 8,350,144 7,713,874 7,604,719
PROVISION FOR POSSIBLE LOAN LOSSES 573,000 436,500 348,000
----------- ----------- -----------
Net interest income after provision
for possible loan losses 7,777,144 7,277,374 7,256,719
----------- ----------- -----------
NONINTEREST INCOME
Service charges and other fees 595,779 535,407 508,751
Gain on sale of building and land - - 301,862
Securities gains 7,893 23,447 12,499
Other operating income 338,338 321,274 250,308
----------- ----------- -----------
Total noninterest income 942,010 880,128 1,073,420
----------- ----------- -----------
NONINTEREST EXPENSE
Salary and employee benefits 2,726,445 2,539,612 2,433,917
Net occupancy expense of premises 830,792 772,233 768,917
Other operating expenses 1,767,231 1,504,468 1,537,408
----------- ----------- -----------
Total noninterest expense 5,324,468 4,816,313 4,740,242
----------- ----------- -----------
Income before income taxes 3,394,686 3,341,189 3,589,897
INCOME TAXES 982,283 1,015,283 1,139,516
----------- ----------- -----------
Net income $ 2,412,403 $ 2,325,906 $ 2,450,381
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,538,443 1,538,443 1,538,443
=========== =========== ===========
EARNINGS PER COMMON SHARE $1.57 $1.51 $1.59
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
20
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, 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 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
Comprehensive income
Net income - - - 2,412,403 - $ 2,412,403 2,412,403
Other comprehensive income,
net of tax:
Unrealized gains (losses) on securities
net of reclassification
adjustment (see disclosure) - - - - 657,606 657,606 657,606
-----------
Comprehensive income $ 3,070,009
===========
Cash dividend ($.68 per share) - - - (1,046,141) - (1,046,141)
--------- ---------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2001 1,538,443 $7,692,215 $4,982,606 $ 6,954,229 $ 619,918 $20,248,968
========= ========== ========== =========== =========== ===========
2001 2000 1999
---------- ----------- -----------
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during period $ 662,553 $ 842,290 $(1,017,495)
Less reclassification adjustment for
gains (losses) included in net income 4,947 14,697 7,834
----------- ---------- -----------
Net unrealized gains (losses)
on securities $ 657,606 $ 827,593 $(1,025,329)
=========== ========== ==========
The accompanying notes are an integral part of the financial statements.
21
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,412,403 $ 2,325,906 $ 2,450,381
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 573,000 436,500 348,000
Depreciation and amortization 379,761 337,148 357,987
(Accretion) of investment
securities, net (116,622) (316,940) (105,679)
Investment security (gains) (7,893) (23,447) (12,499)
Gain on sale of building and land (3,110) - (301,862)
Decrease (increase) in
interest receivable 290,981 (186,705) (113,813)
Increase (decrease) in interest payable (78,836) 98,883 27,255
Other, net (142,981) (231,613) 140,163
----------- ----------- -----------
Net cash provided by
operating activities 3,306,703 2,439,732 2,789,933
----------- ----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease
in federal funds sold (3,236,000) (1,911,000) 1,607,000
Net (increase) decrease in loans,
net of charge-offs (7,150,128) (3,881,055) (7,277,881)
Proceeds from sales of securities
available-for-sale 2,011,728 891,610 2,660,611
Proceeds from maturities of securities
available-for-sale 82,380,000 53,064,000 44,681,367
Proceeds from maturities of securities
held-to-maturity 2,025,000 1,637,000 2,716,000
Principal collected on mortgage-
backed securities 10,346,018 3,558,412 4,811,188
Purchases of securities available-
for-sale (105,549,065) (68,471,833) (59,728,039)
Purchases of securities held-
to-maturity - (1,867,819) (2,017,367)
Recoveries on loans previously
charged-off 30,220 34,308 21,576
Cash acquired in purchase of branch
office 8,990,870 - -
Purchases of premises and equipment (1,565,116) (250,550) (110,881)
Proceeds from sales of premises
and equipment 11,810 - 418,152
----------- ----------- -----------
Net cash used in
investing activities (11,704,663) (17,196,927) (12,218,274)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 30,103,376 12,110,646 13,773,113
Deposits acquired in purchase of
branch office (9,612,129) - -
Dividends paid (1,046,141) (983,871) (830,518)
Increase (decrease ) in short-
term borrowings (7,988,680) 4,252,403 3,279,901
----------- ----------- -----------
Net cash provided by
financing activities 11,456,426 15,379,178 16,222,496
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 3,058,466 621,983 6,794,155
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 12,436,250 11,814,267 5,020,112
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $15,494,716 $12,436,250 $11,814,267
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 6,500,903 $ 7,056,644 $ 5,574,707
Cash paid for income taxes 1,203,765 1,213,168 1,190,631
The accompanying notes are an integral part of the financial statements
22
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
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 accounting principles
generally accepted in the United States of America 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 nine full service branches located in
Wheeling (2), Wellsburg, Moundsville (2), New Martinsville, Buckhannon, and
Weston, West Virginia and Bellaire, Ohio. Primary deposit products consist of
checking accounts, savings accounts, and certificates of deposit. Primary
lending products consist of commercial and residential real estate loans,
consumer loans, and business loans.
Principles of Consolidation
- ----------------------------
The consolidated financial statements of the 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.
23
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Provisions for depreciation and amortization are computed
generally using the straight-line method over the estimated useful lives of the
assets.
When units of property are disposed of, the premises and equipment accounts are
relieved of the cost and the accumulated depreciation related to such units.
Any resulting gains or losses are credited to or charged against income. Cost
of repairs and maintenance is charged to expense as incurred. 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 accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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.
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Dividends
- ---------------
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.
Intangible Assets
- -----------------
During 2001, the Corporation purchased the deposits of another financial
institution. An identifiable intangible asset resulted from the purchase of
core deposits. Intangible assets are reported in other assets on the balance
sheet and are amortized into noninterest expense on the straight-line basis
over the period the Corporation expects to benefit from such assets (7 years).
The Corporation recognized amortization expense of $73,959 during 2001. The
unamortized balance of intangible assets was $547,300 at December 31, 2001.
Recent Accounting Pronouncements
- --------------------------------
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 No. 125's provisions without
reconsideration. Under SFAS No.140, after a transfer of financial assets, and
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 exchange. This
statement is generally effective for activity occurring after March 31, 2001.
Earlier or retroactive application of this statement is not permitted. The
adoption of SFAS No.140 did not have a material impact on the Corporation.
The FASB issued SFAS No.141, "Business Combinations." SFAS No.141 addresses
financial accounting and reporting for business combinations and supercedes APB
Opinion No.16, "Business Combinations," and FASB Statement No. 38, "Accounting
for Pre-acquisition Contingencies of Purchased Enterprises," but it does carry
forward some guidance from those statements. This statement requires that all
business combinations be accounted for by the purchase method and that acquired
intangible assets are recognized as assets apart from goodwill if they meet one
of two criteria. The statement also sets forth additional disclosure
requirements as a result of a business combination. The provisions of this
statement apply to all business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001, or later. The
adoption of SFAS No.141 did not have a material impact on the Corporation.
The FASB issued SFAS No.142, "Goodwill and Other Intangible Assets," which
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supercedes APB Opinion No.17, "Intangible Assets," but it
does carry forward some guidance from that statement. This statement requires
that an intangible asset that is acquired either individually or with a group
of other assets (but not those acquired in a business combination) shall be
initially recognized and measured based on its fair value. Under SFAS No.142,
goodwill is not amortized and intangible assets with a finite useful life are
amortized and those intangible assets with an infinite life are not amortized.
This statement is generally effective for fiscal years beginning after December
15, 2001, to all goodwill and other intangible assets recognized in an entity's
statement of financial position at the beginning of that fiscal year,
regardless of when those previously recognized assets were initially
recognized. The provisions of this statement shall be initially applied at the
beginning of a fiscal year; retroactive application is not permitted.
Management does not believe the adoption of SFAS No.142 will have a material
impact on the Corporation.
Reclassifications
- ------------------
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
25
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 2 - INVESTMENT SECURITIES
The estimated fair values of investment securities are as follows at
December 31, 2001 and 2000:
December 31, 2001
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ----------- ------------ -----------
Securities held to maturity: (Expressed in Thousands)
- ----------------------------
Obligations of states and political subdivisions $ 8,854 $ 162 $ (4) $ 9,012
------------- ----------- ----------- -----------
Total held to maturity 8,854 162 (4) 9,012
------------- ----------- ----------- -----------
Securities available for sale:
- ------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 31,141 246 (34) 31,353
Obligations of states and political subdivisions 7,792 127 (2) 7,917
Corporate debt securities 7,960 128 (2) 8,086
Mortgage-backed securities 25,008 555 (28) 25,535
Equity securities 458 30 (31) 457
------------- ----------- ----------- -----------
Total available for sale 72,359 1,086 (97) 73,348
------------- ----------- ----------- -----------
Total $ 81,213 $ 1,248 $ (101) $ 82,360
============= ============ ============ ===========
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 324 82 (18) 388
------------- ----------- ------------ ----------
Total available for sale 61,424 313 (373) 61,364
------------- ----------- ------------ ----------
Total $ 72,302 $ 406 $ (423) $ 72,285
============= ============ ============ ===========
26
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 2001, 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 $ 960 $ 974 $ 14,958 $ 15,014
Due after one year through five years 4,043 4,123 25,742 26,069
Due after five years through ten years 3,851 3,915 4,659 4,745
Due after ten years -- -- 1,534 1,528
---------- ----------- ------------ ----------
8,854 9,012 46,893 47,356
Mortgage-backed securities -- -- 25,008 25,535
Equity securities -- -- 458 457
---------- ----------- ------------ ----------
Total $ 8,854 $ 9,012 $ 72,359 $ 73,348
========== =========== ============ ===========
Proceeds from sales of securities available-for-sale during the years ended
December 31, 2001, 2000, and 1999, were $2,011,728, $891,610, and $2,660,611,
respectively. Gross gains of $28,885 and gross losses of $20,992 in 2001; gross
gains of $37,956 and gross losses of $14,509 in 2000; and gross gains of
$26,247 and gross losses of $13,748 in 1999, were realized on those sales.
Assets carried at $30,656,000 and $38,758,000 at December 31, 2001 and 2000,
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, 2001 and 2000, are as follows:
(Expressed in Thousands)
2001 2000
---------- -----------
Real estate-construction $ 395 $ 119
Real estate-farmland 212 106
Real estate-residential 44,554 42,960
Real estate-secured by non-farm, non-residential 34,525 28,391
Commercial and industrial loans 13,889 13,845
Installment and other loans to individuals 19,517 23,896
Non-rated industrial development obligations 7,784 4,610
Other loans 187 216
------------- ------------
Total 121,063 114,143
Less unearned interest and deferred fees 119 90
------------- ------------
Net loans $ 120,944 $ 114,053
============= ============
27
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 3 - LOANS AND LEASES (CONTINUED)
The Corporation had no loans at December 31, 2001 and 2000, that were
specifically classified as impaired. Non-accrual loans amounted to $1,184,098
and $1,248,463 at December 31, 2001 and 2000, respectively. The amount of
interest income that would have been recognized had the loans performed in
accordance with their original terms were $96,600 and $42,200 for 2001 and
2000, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
December 31,
2001 2000 1999
------------ ------------ ------------
Balance, beginning of year $ 1,302,044 $ 1,147,720 $ 1,122,912
Additions charged to operating expense 573,000 436,500 348,000
Recoveries 30,220 34,308 21,576
------------ ------------ ------------
Total 1,905,264 1,618,528 1,492,488
Less loans charged-off 259,292 316,484 344,768
------------ ------------ ------------
Balance, end of year $ 1,645,972 $ 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
2001 2000 Years
------------ ------------ ------------
Land $ 1,372,428 $ 1,082,001
Land improvements 255,755 242,089 20
Leasehold improvements 399,598 399,598 25
Buildings 3,660,714 2,745,068 20 - 50
Furniture, fixtures & equipment 2,608,071 2,339,435 3 - 20
------------ ------------
Total 8,296,566 6,808,191
Less accumulated depreciation 4,291,213 4,053,452
------------ ------------
Premises and equipment, net $ 4,005,353 $ 2,754,739
============ ===========
Charges to operations for depreciation approximated $305,802, $337,148, and
$357,987 for 2001, 2000, and 1999, respectively.
28
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 6 - DEPOSITS
The composition of the banks' deposits at December 31 follows:
(Expressed in Thousands)
2001
--------------------------------------------------------
Demand
-----------------------------
Noninterest Interest
Bearing Bearing Savings Time
------------- ------------ ----------- --------
Individuals, partnerships and corporations $ 19,733 $ 28,469 $ 67,085 $ 78,034
(Includes certified and official checks)
United States Government 40 - - -
States and political subdivisions 1,032 2,984 2,460 3,864
Commercial banks and other depository institutions 71 - - -
------------- ------------ ----------- --------
Total $ 20,876 $ 31,453 $ 69,545 $ 81,898
============= ============ =========== ========
(Expressed in Thousands)
2000
--------------------------------------------------------
Demand
------------------------------
Noninterest Interest
Bearing Bearing Savings Time
------------- ------------ ----------- --------
Individuals, partnerships and corporations $ 15,982 $ 21,814 $ 56,901 $ 70,322
(Includes certified and official checks)
United States Government 40 - - -
States and political subdivisions 160 2,242 3,043 2,829
Commercial banks and other depository institutions 336 - - -
------------- ------------ ----------- ---------
Total $ 16,518 $ 24,056 $ 59,944 $ 73,151
============= ============ =========== =========
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $21,586,000 and $17,456,000 at December 31,
2001 and 2000, respectively.
A maturity distribution of time certificates of deposit of $100,000 or more at
December 31, 2001, follows:
Due in three months or less $ 3,876,000
Due after three months through six months 3,578,000
Due after six months through twelve months 3,200,000
Due after one year through five years 10,932,000
------------
Total $ 21,586,000
============
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
2001 2000 1999
------------- ------------- -----------
Currently payable:
Federal $ 974,784 $ 985,940 $1,002,894
State 208,490 189,896 198,482
Deferred:
Federal (172,208) (118,498) (51,252)
State (28,783) (42,055) (10,608)
------------ ------------ ------------
Income tax expense $ 982,283 $ 1,015,283 $1,139,516
============ ============ ============
29
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 7 - INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax asset
at December 31:
2001 2000
------------ ------------
Allowance for loan losses $ 473,242 $ 338,534
Deferred loan fees 40,508 30,595
Accrued interest on non-performing loans 45,522 26,266
Deferred compensation 185,061 162,110
Deferred directors fees 30,582 27,645
Depreciation 46,779 36,317
Amortization 13,411 -
Deferred state income tax (45,931) (34,117)
Other, net - (1,162)
------------ ------------
Total deferred tax asset - federal 789,174 586,188
Total deferred tax asset - state 135,092 100,343
------------ ------------
924,266 686,531
Deferred tax assets (liabilities) arising
from market adjustments of securities available
for sale
Federal (319,650) 19,421
State (49,450) 3,018
------------ ------------
Total deferred tax assets $ 555,166 $ 708,970
============ ============
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:
2001 2000 1999
------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
------------ ----- ---------- ----- --------- -----
Computed tax at statutory
Federal rate $1,154,193 34.0 % $1,136,004 34.0 % $1,220,565 34.0 %
Plus state income taxes net
Of federal tax benefits 118,607 3.5 97,575 2.9 123,996 3.5
------------ ----- ------------ ----- ------------ -----
1,272,800 37.5 1,233,579 36.9 1,344,561 37.5
Increase (decrease) in taxes
resulting from:
Tax exempt income (338,464) (10.0) (259,893) (7.7) (237,451) (6.6)
Nondeductible interest expense 41,415 1.2 37,608 1.1 30,095 0.8
Others - net 6,532 0.2 3,989 0.1 2,311 0.0
------------ ----- ------------ ----- ------------ -----
Actual tax expense $ 982,283 28.9 % $1,015,283 30.4 % $1,139,516 31.7 %
============ ===== =========== ===== =========== =====
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 $116,200, $113,200, and $123,700 for
the years ended December 31, 2001, 2000, and 1999, 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 $19,170, $19,151, and $20,693 in 2001, 2000, and 1999,
respectively.
30
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
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:
2001 2000 1999
------------- ------------ ------------
Balance at end of year $ 6,537,648 $14,526,328 $ 9,923,925
Average balance during the year 10,033,772 14,086,160 8,984,571
Maximum month-end balance 17,834,576 18,362,645 11,122,282
Weighted-average rate during the year 2.89% 4.53% 3.24%
Rate at December 31 1.42% 3.61% 1.77%
The subsidiary Banks had no significant activity in federal funds purchased
during 2001. Information related to federal funds purchased for 2001, 2000
and 1999 is summarized below:
2001 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:
2001 2000
------------- ------------
Commitments to extend credit $ 19,390,000 $ 14,272,000
Standby letters of credit 121,000 35,000
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 2002. 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, 2001, the subsidiary Banks had unused lines of credit
available with the FHLB in the aggregate amount of $10,446,000. There were no
outstanding borrowings at December 31, 2001.
31
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
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 $4,889,197 at December 31, 2001, and
$4,242,267 at December 31, 2000.
The following is an analysis of loan activity to directors, executive officers,
and associates of the Corporation and its subsidiaries:
December 31,
2001 2000
------------- ------------
Balance, January 1 $ 4,242,267 $ 4,262,517
New loans during the period 2,606,078 788,856
Repayments during the period (1,959,137) (809,106)
------------- ------------
Ending balance $ 4,889,208 $ 4,242,267
============ =============
On May 12, 2001, one of the Corporation's subsidiary banks entered into a lease
agreement to rent property for use as banking premises from a company owned by
one of the Corporation's directors. The lease has an initial term of 5 years,
at an annual rental fee of $57,600, with options to renew for eight 5-year
terms.
NOTE 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, 2001, the future minimum rental payments required under
noncancellable operating leases with initial terms in excess of one year, are
as follows:
December 31, 2002 $ 159,485
December 31, 2003 164,285
December 31, 2004 164,285
December 31, 2005 127,035
December 31, 2006 101,535
Thereafter 260,479
Rental expense under operating leases approximated $106,000 in 2001; $101,000
in 2000; and $91,000 in 1999.
32
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 14 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
2001 2000 1999
---------- ---------- ----------
Directors fees $ 148,425 $ 150,375 $ 137,150
Stationery and supplies 155,761 126,701 138,959
Regulatory assessment and deposit
insurance 104,399 99,888 79,985
Advertising 144,474 144,691 123,680
Postage and transportation 152,539 135,688 128,374
Other taxes 174,152 139,882 140,949
Service Expense 255,022 224,833 230,116
Other 632,459 482,410 558,195
---------- ---------- ----------
Total $1,767,231 $1,504,468 $1,537,408
============ =========== ==========
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, 2001 and 2000, were $1,155,000 and
$872,000, 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 2002, without approval of the
Comptroller of the Currency, of approximately $4 million, plus an additional
amount equal to the Bank's net profit for 2002 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, 2001, that
the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 2001, 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.
33
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
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, 2001:
Total Capital $ 20,173 14.3% $ 11,307 8.0% $ 14,133 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 18,527 13.1% $ 5,653 4.0% $ 8,480 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 18,527 8.4% $ 6,655 3.0% $ 11,092 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, 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)
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.
34
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 18 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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)
2001 2000
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- -----------
Financial assets:
Cash and short-term investments $ 23,127 $ 23,127 $ 16,832 $ 16,832
Investment securities 82,202 82,360 72,945 72,987
Loans 119,298 119,736 112,751 112,720
Financial liabilities:
Deposits 203,772 206,496 173,669 173,373
Short-term borrowings 6,538 6,538 14,526 14,526
NOTE 19 - COMPREHENSIVE INCOME
The Corporation is required to present comprehensive income in a full set of
general purpose financial statements for all periods presented. Other
comprehensive income (loss) is comprised exclusively of unrealized holding
gains (losses) on the available-for-sale securities portfolio. The Corporation
has elected to report the effects of other comprehensive income (loss) as part
of the Statement of Changes in Stockholders' Equity. The following represents
other comprehensive income before tax and net of tax.
2001 2000 1999
------------- ---------- -----------
Before-tax amount $ 1,054,363 $ 1,326,909 $(1,635,810)
Tax effect 396,757 499,316 610,481
------------- ---------- -----------
Net-of-tax amount $ 657,606 $ 827,593 $(1,025,329)
============= ========== ===========
35
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
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,
2001 2000
----------- -----------
ASSETS
Cash $ 291,990 $ 384,484
Investment in common stock - available
for sale (at market value) 466,183 461,684
Investment in subsidiary banks 19,829,215 17,706,302
Other assets 226,408 169,731
----------- -----------
Total assets $20,813,796 $18,722,201
=========== ===========
LIABILITIES
Accrued expenses $ 20,531 $ 20,306
Deferred compensation 544,297 476,795
----------- -----------
Total liabilities 564,828 497,101
STOCKHOLDERS' EQUITY 20,248,968 18,225,100
----------- -----------
Total liabilities and stockholders' equity $20,813,796 $18,722,201
=========== ===========
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
---------- ---------- ----------
INCOME
Dividends from subsidiary banks $1,038,960 $ 957,190 $ 817,700
Rental income - - 13,000
Gain on sale of land and building - - 301,862
Gain on sale of investments 9,160 23,436 10,864
Other income 139,514 143,455 134,930
---------- ---------- ----------
Total income 1,187,634 1,124,081 1,278,356
---------- ---------- ----------
EXPENSES
Salary and employee benefits 101,815 119,315 86,109
Interest expense 2,580 2,580 2,580
Occupancy expense - - 3,800
Other expenses 137,730 136,863 132,940
---------- ---------- ----------
Total expenses 242,125 258,758 225,429
---------- ---------- ----------
Income before income taxes and
equity in undistributed income
of subsidiaries 945,509 865,323 1,052,927
INCOME TAX (PROVISION) BENEFIT 42,212 37,557 (85,493)
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 1,424,682 1,423,026 1,482,947
---------- ---------- ----------
Net income $2,412,403 $2,325,906 $2,450,381
========== ========== ==========
36
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001, 2000 AND 1999
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------- ---------- ----------
OPERATING ACTIVITIES
Net income $2,412,403 $2,325,906 $2,450,381
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization - - 3,800
Change in deferred tax benefit (25,813) (39,179) (32,565)
Undistributed earnings of affiliates (1,424,682) (1,413,406) (1,482,947)
Changes in operating assets
and liabilities:
Other assets (6,675) 1,626 (1,625)
Deferred compensation 67,500 101,013 85,149
Other liabilities 225 (16,457) 6,598
Gain on sale of securities (9,160) (23,436) (10,864)
Gain on sale of land and buildings - - (301,862)
---------- ----------- -----------
Net cash provided by
operating activities 1,013,798 936,067 716,065
---------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of securities 152,096 91,567 102,000
Proceeds from sale of land and building - - 418,152
Purchase of investment securities (212,247) (155,973) (208,722)
---------- ----------- -----------
Net cash provided by (used in)
investing activities (60,151) (64,406) 311,430
---------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid (1,046,141) (983,871) (830,518)
---------- ----------- -----------
Net cash used in
financing activities (1,046,141) (983,871) (830,518)
---------- ----------- -----------
INCREASE IN CASH
AND CASH EQUIVALENTS (92,494) (112,210) 196,977
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 384,484 496,694 299,717
---------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 291,990 $ 384,484 $ 496,694
=========== =========== ===========
Supplemental disclosures:
Cash paid for interest $ 2,580 $ 2,580 $ 2,580
Cash paid for income taxes 100 10,435 115,300
37
-----------------------------------------------------
First West Virginia Bancorp, Inc.
DIRECTORS
Nada E. Beneke. . . . . . . . . . . . . . . . . . . . . . . . . . . .Registered Sanitarian
President, Beneke Corporation
Sylvan J. Dlesk. . . . . . . . . . . . . Vice Chairman, First West Virginia Bancorp, Inc.
President & CEO, 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. . . . . . . . . . . . . . . Chairman of the Board, Progressive Bank, N.A.
Attorney at Law
Karl W. Neumann. . . . . . . . . . . . .Vice Chairman of the Board, Progressive Bank, N.A.
Retired Insurance Executive
Thomas A. Noice. . . . . . . . . . . . . . . . . . . . . . . . . . Retired Bank Executive
William G. Petroplus. . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney at Law
OFFICERS
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
Jeffrey C. Gannon. . . . . . . . . . . . . . . .Senior Vice President, Senior Loan Officer
Francie P. Reppy. . . . . . . . . . . . . . Senior Vice President, Chief Financial Officer
Connie R. Tenney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President
Stephanie A. LaFlam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secretary
__________________________________________________
38
__________________________________________________
SUBSIDIARY
Progressive Bank N.A.
Wheeling, WV 26003
DIRECTORS OFFICERS
Nada E. Beneke James C. Inman, Jr. R. Clark Morton, Chairman of the Board
Dr. Clyde D. Campbell Laura G. Inman Karl W. Neumann, Vice Chairman of the Board
Robert R. Cicogna H. Dennis Long Charles K. Graham, President & Chief Executive Officer
Gary P. DeVendra Tulane B. Mensore Beverly A. Barker, Executive Vice President/ Chief Operating Officer/Cashier
Sylvan J. Dlesk R. Clark Morton Jeffrey C. Gannon, Senior Vice President, Senior Loan Officer
Charles K. Graham Karl W. Neumann Laura G. Inman, Senior Vice President
C. Gary Hill William G. Petroplus Francie P. Reppy, Senior Vice President, Chief Financial Officer
Ben R. Honecker Thomas L. Sable Gary S. Martin, Vice President
Robert B. Hunnell, Jr. David E. Wharton, Vice President/Information Technology Officer
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
Susan E. Reinbeau, Assistant Vice President/Branch Coordinator/
Harry N. Duvall William T. Nickerson Office Manager Woodsdale
T. Stewart Hopkins Edward P. Otte Michele L. Stanley, Assistant Vice President/Office Manager Warwood
Harold O. Thomas, Senior Business Development Officer
Mitzi K. Mattern, Credit Card Manager/Office Manager Wellsburg
Lisa M. Wagner, Office Manager Moundsville
Kenna S. Cozart, Office Manager New Martinsville
Laura K. Snedeker, Manager Bookkeeping/Proof Operations
Rebecca A. Palmer, Manager Data Processing
Debra M. Tomlin, Loan Officer
Kerrie A. Weisenborn, 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 Smith, Office Manager Weston
Roberta L. Hillyard, Loan Officer
__________________________________________________
39
Progressive Bank N.A. - Wheeling
(Photograph) (Photograph) (Photograph)
Wellsburg Office New Martinsville Office Bellaire Office
Wellsburg, WV New Martinsville, WV Bellaire, OH
(Photograph) (Photograph)
Warwood Office Woodsdale Office
Wheeling, WV Wheeling, WV
(Photograph) (Photograph)
Moundsville Main Office Moundsville Kroger Store Office
Moundsville, WV Moundsville, WV
Progressive Bank, N.A. - Buckhannon
(Photograph) (Photograph)
Buckhannon Office Weston Office
Buckhannon, WV Weston, WV
40
First West Virginia Bancorp, Inc. and Subsidiaries
Corporate Information
- -------------------------------------------------------------------------------
Corporate Office:
First West Virginia Bancorp, Inc.
1701 Warwood Avenue
Wheeling, WV 26003
(304) 277-1100
Transfer Agent:
Any inquiries related to stockholder records, stock transfers, changes of
ownership, and changes of address should be sent to the transfer agent at the
following address:
Investor Relations Department
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-9982
(800)368-5948
Stock Trading Information:
First West Virginia Bancorp, Inc.'s common stock is traded on the American
Stock Exchange, Inc. primary list under the symbol FWV.
Annual Meeting
The Annual Meeting of Stockholders will be held at 4:00 p.m, on Tuesday, April
9, 2002, 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, 2001, may obtain
a copy of the Corporation's 2001 Form 10-K Report (to be filed with the
Securities and Exchange Commission before March 31, 2002) by writing to the
Secretary, First West Virginia Bancorp, Inc., 875 National Road, Wheeling, WV
26003