53
EXHIBIT 13.1
Annual Report to Shareholders
54
(FIRST WEST VIRGINIA BANCORP LETTERHEAD)
P.O. Box 6671
Wheeling, WV 26003
Dear Shareholders,
It is with great pleasure that I present to you the record earnings
performance contained in the 1999 Annual Report of First West Virginia
Bancorp, Inc. Consolidated total assets, loans, deposits, net income,
earnings per share, return on average assets, return on average equity, book
value per share, and shareholder dividends all are the highest ever in Company
history at the end of 1999. Consolidated net income for 1999 was $2,450,381
or $1.62 per share, a 20.5% increase over the $2,033,025 or $1.35 per share
earned for 1998. The Holding Company ended the year 1999 with total assets of
$189,172,634, an increase of 10.4% over the $171,395,079 reported in 1998.
Total stockholders' equity at December 31, 1999 was $16,055,472, an increase
of 3.8% over the prior year. The book value per share was $10.64 at December
31, 1999 as compared to $10.25 a year earlier.
During 1999, the Board of Directors declared and paid cash dividends of $.55
per share compared to $.49 per share during 1998, which represents an increase
of 12.9% over the prior year. Additionally, on October 12, 1999 the Board of
Directors declared a six for five stock split in the effect of a twenty
percent (20%) common stock dividend payable to shareholders of record as of
November 1, 1999.
In our continued commitment to grow and market the branch offices of our
subsidiary banks as well as give back to the communities that these offices
serve, we have initiated formal strategic plans through our business
development department to help maintain customer relations while increasing
new business opportunities. Community reinvestment remains a vital part of
our sales, service and quality initiative.
After much planning, monitoring, and testing of our information systems and
applications, our conversion into the year 2000 was achieved with excellent
results. While preparing for the rollover to the year 2000 was time consuming
and sometimes difficult, the fruits of our labor were realized when midnight
December 31st arrived and departed basically as a nonevent.
I would like to take this opportunity to welcome Douglas K. Stalnaker as a new
director to the Progressive Bank, N.A. - Buckhannon Board of Directors. He is
the owner of the Kiddy Monument Company in Weston, West Virginia, as well as a
member of the West Virginia House of Delegates. We are pleased to have him as
a director at the subsidiary bank.
First West Virginia Bancorp, Inc. has been built on a philosophy of
safety and soundness, service and commitment to our customers and strategic
growth. This philosophy has brought us to where we are today and will lead
our community banks into the future.
In closing this year's letter, I would like to inform you of my impending
retirement as of March 31, 2000. I accepted my position with this Company
some twenty-one years ago and have seen the Company attain record growth and
prosperity to the levels we are at today. My sincere gratitude to our loyal
customers and shareholders, as well as all of the directors, officers, and
employees, all of whom I have enjoyed working with over the years, and who are
an integral part of our organization.
Sincerely,
/s/ Ronald L. Solomon
Ronald L. Solomon
Vice Chairman, President and
Chief Executive Officer
55
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Table One
SELECTED FINANCIAL DATA
(In thousands, except per share data)
- --------------------------------------------------------------------------------
1st West Virginia Bancorp, Inc.
Years ended
December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
SUMMARY OF OPERATIONS
Total interest income $ 13,207 $ 12,452 $ 11,507 $ 10,067 $ 8,937
Total interest expense 5,602 5,324 4,745 3,925 3,421
Net interest income 7,605 7,128 6,762 6,142 5,516
Provision for loan losses 348 256 131 71 50
Total other income 1,073 787 639 568 738
Total other expenses 4,740 4,674 4,377 4,182 4,007
Income before income taxes 3,590 2,985 2,893 2,457 2,198
Net income 2,450 2,033 1,931 1,644 1,470
PER SHARE DATA (1)
Net income $ 1.62 $ 1.35 $ 1.28 $ 1.09 $ .97
Cash dividends declared (2) .55 .49 .43 .38 .27
Book value per share 10.64 10.25 9.37 8.39 7.76
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 105,775 $ 99,345 $ 86,609 $ 74,469 $ 66,058
Investment securities 60,405 48,543 51,754 48,557 46,020
Deposits - Interest Bearin 141,768 127,520 120,589 112,768 100,488
Stockholders' equity 16,087 14,697 13,400 12,186 11,170
Total Assets 183,436 164,630 153,290 137,810 124,145
BALANCE SHEET
Investments $ 60,095 $ 54,735 $ 45,444 $ 50,440 $ 45,996
Loans 110,489 103,555 95,374 80,417 72,006
Other Assets 18,589 13,105 15,325 13,689 9,953
--------- --------- --------- --------- ---------
Total Assets $ 189,173 $ 171,395 $ 156,143 $ 144,546 $ 127,955
========= ========= ========= ========= =========
Deposits $ 161,558 $ 147,785 $ 137,045 $ 125,271 $ 114,895
Federal funds purchased and
Repurchase Agreements 10,274 6,994 4,075 5,931 749
Other Liabilities 1,285 1,155 894 695 602
Shareholders' Equity 16,056 15,461 14,129 12,649 11,709
--------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 189,173 $ 171,395 $ 156,143 $ 144,546 $ 127,955
========= ========= ========= ========= =========
SELECTED RATIOS
Return on average assets 1.34% 1.23% 1.26% 1.19% 1.18%
Return on average equity 15.23% 13.83% 14.41% 13.49% 13.16%
Average equity to average a 8.77% 8.93% 8.74% 8.84% 9.00%
Dividend payout ratio (1) (2) 33.95% 36.30% 33.59% 34.86% 27.84%
Loan to Deposit ratio 68.39% 70.07% 69.59% 64.19% 62.67%
(1) Adjusted for 6 for 5 stock split in the effect of a twenty (20) percent
common stock dividend, declared October 12, 1999 to shareholders of
record as of November 1, 1999, a 4 percent common stock dividend to
stockholders of record as of October 1, 1998, a 3 for 2 stock split in
the effect of a fifty (50) percent common stock dividend to shareholders
of record as of October 1, 1997, a 4 percent common stock dividend to
stockholders of record as of December 2, 1996.
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2
56
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First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
---------------------------------------------------------------
First West Virginia Bancorp, Inc., a West Virginia corporation headquartered
in Wheeling, West Virginia commenced operations in July 1973 and has two
wholly-owned subsidiaries: Progressive Bank, N.A., which operates in
Wheeling, Wellsburg, and Moundsville, West Virginia and Bellaire, Ohio; and
Progressive Bank, N.A.-Buckhannon, which operates in Buckhannon and Weston,
West Virginia. Following is a discussion and analysis of the significant
changes in the financial condition and results of operations of First West
Virginia Bancorp, Inc., (the Holding Company), and its subsidiaries for the
years ended December 31, 1999, 1998 and 1997. 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 $2,450,381 for the year ended
December 31, 1999 as compared to $2,033,025 for the year ended December 31,
1998. The 20.5% increase in earnings during 1999 over 1998 can be primarily
attributed to increased net interest income and noninterest income, partially
offset by increased operating expenses and the provision for loan losses.
Earnings per common share were $1.62 in 1999 compared to $1.35 in 1998.
Operational earnings improved with net interest income increasing $476,447 or
6.7%, to $7,604,719 during 1999 as compared to the same period in 1998. The
increase primarily results from an increase in the investment securities
portfolio and the growth in the loan portfolio. The significant increase in
noninterest income in 1999 resulted from the $301,862 gain on the sale of
building and land by the Holding Company.
The return on average assets (ROA), which measures the effectiveness of asset
utilization to produce net income, was 1.34% in 1999 and 1.23% in 1998. The
return on average equity (ROE), which measures the return on the stockholders'
investment, was 15.23% in 1999 and 13.83% in 1998.
The Holding Company ended the year 1999 with total assets of $189,172,634 an
increase of 10.4% over the $171,395,079 reported for the year ended December
31, 1998. Loans net of reserves increased in 1999 by $6,908,305 to
$109,340,712, as compared to $102,432,407 reported at December 31, 1998.
Total deposits increased in 1999 by $13,773,113, from $147,784,819 at December
31, 1998 to $161,557,932 at December 31, 1999, primarily due to the increase
in time deposits and savings deposits.
The allowance for loan losses amounted to $1,147,720 at December 31, 1999 or
1.0% of total loans, compared to $1,122,912 or 1.1% of total loans at December
31, 1998. Non-performing assets were $892,000 at December 31, 1999, as
compared to $664,000 at December 31, 1998.
The Board of Directors declared and paid cash dividends of $.55 per share
during 1999 as compared to $.49 in 1998. On October 12, 1999, the Board of
Directors also declared a six for five stock split in the effect of a twenty
percent (20%) common stock dividend to its shareholders of record as of
November 1, 1999. Accordingly, 251,274 shares of common stock were issued on
November 18, 1999.
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, 1999, 1998, and 1997.
Net interest income was $7,604,719 in 1999, an increase of $476,447 or 6.7%,
from 1998, following an increase in 1998 of $365,910 or 5.4% from 1997. The
increase in net interest income for 1999 was primarily attributable to the
increase in the investment securities and the growth in the loan portfolio.
The increase in the average volume of investment securities resulted in the
overall increase in interest earned on investment securities during 1999.
Interest income on investment securities during 1999 increased $556,580 or
19.2% over 1998. The increase in the average volume of investment securities
primarily contributed to the increase in net interest income during 1999. The
average volume of investment securities increased $11,862,000 in 1999. During
1998, the decline in the average volume of investment securities resulted in
the overall decrease in interest earned on investment securities. Interest
income on investment securities during 1998 decreased $286,947 or 9.0% from
1997. The average volume of investment securities decreased in 1998 primarily
due to the increased loan funding. The average yield on investment securities
decreased .25%, from 5.98% in 1998 to 5.73% in 1999 and decreased .19% from
6.17% in 1997 to 5.98% in 1998.
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3
57
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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, 1999, 1998, and 1997. Average balance sheet information as of
December 31, 1999, 1998, and 1997 was compiled using the daily average
balance sheet. Loan fees and unearned discounts were included in income for
average rate calculation purposes. Non-accrual loans were included in the
average balance computations; however, no interest was included in income
subsequent to the non-accrual status classification.
December 31, 1999 December 31, 1998 December 31, 1997
---------------------------- ---------------------------- ----------------------------
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 $ 46,283 $ 2,799 6.05% $ 38,387 $ 2,399 6.25% $ 45,157 $ 2,861 6.34%
Obligations of states and
political subdivisions 11,546 507 4.39% 8,155 382 4.68% 5,470 264 4.83%
Other securities 2,576 156 6.06% 2,001 124 6.20% 1,127 69 6.12%
-------- ------- ------ --------- -------- ------ -------- ------- ------
Total Investment securities: 60,405 3,462 5.73% 48,543 2,905 5.98% 51,754 3,194 6.17%
Interest bearing deposits 3,861 195 5.05% 2,607 138 5.29% 533 28 5.25%
Federal funds sold 4,923 244 4.96% 6,085 330 5.42% 6,561 357 5.44%
Loans, net of unearned income 105,775 9,306 8.80% 99,345 9,078 9.14% 86,609 7,928 9.15%
-------- ------- ------ --------- -------- ------ -------- ------- ------
Total earning assets 174,964 13,207 7.55% 156,580 12,451 7.95% 145,457 11,507 7.91%
Cash and due from banks 4,628 4,369 4,104
Bank premises and equipment 2,994 3,056 3,178
Other assets 2,005 1,785 1,741
Allowance for possible loan losses (1,155) (1,160) (1,190)
-------- --------- --------
Total Assets $183,436 $ 164,630 $153,290
======== ========= ========
LIABILITIES
Certificates of deposit $ 67,309 $ 3,535 5.25% $ 60,277 $ 3,356 5.57% $ 55,149 $ 2,945 5.34%
Savings deposits 48,752 1,368 2.81% 43,418 1,270 2.93% 41,376 1,102 2.66%
Interest bearing demand deposits 25,707 406 1.58% 23,825 471 1.98% 24,064 509 2.12%
Federal funds purchased and
Repurchase agreements 9,012 293 3.25% 6,600 227 3.44% 5,118 189 3.69%
-------- ------- ------ --------- -------- ------ -------- ------- ------
Total interest bearing liabilities 150,780 5,602 3.72% 134,120 5,324 3.97% 125,707 4,745 3.77%
Demand deposits 15,241 14,720 13,235
Other liabilities 1,328 1,093 948
-------- --------- --------
Total Liabilities 167,349 149,933 139,890
STOCKHOLDERS' EQUITY 16,087 14,697 13,400
-------- --------- --------
Total Liabilities
and Stockholders' Equity $183,436 $ 164,630 $153,290
======== ========= ========
Net yield on earning assets $ 7,605 4.35% $ 7,127 4.55% $ 6,762 4.65%
======= ====== ======= ====== ======= ======
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 1999, 1998, and 1997,
respectively. The effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 11,546 $ 845 7.32% $ 8,155 $ 637 7.81% $ 5,470 $ 440 8.04%
Loans 105,775 9,434 8.92% 99,345 9,215 9.28% 86,609 8,018 9.26%
========= ======= ===== ========= ======= ===== ======== ======= =====
Total earning assets $ 174,964 $13,673 7.81% $ 156,580 $12,843 8.20% $145,457 $11,773 8.09%
========= ======= ===== ========= ======= ===== ======== ======= =====
Taxable equivalent net yield on
earning assets $ 8,071 4.61% $ 7,519 4.80% $ 7,028 4.83%
======= ===== ======= ===== ======= =====
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4
58
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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, 1999, 1998, and 1997 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.
1999 Compared to 1998 1998 Compared to 1997 1997 Compared to 1996
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 $ 493 $ (93) $ 400 $ (429) $ (33) $ (462) $ 175 $ 185 $ 360
Obligations of states and
political subdivisions 159 (34) 125 130 (12) 118 30 (13) 17
Other securities 36 (4) 32 53 2 55 (24) (8) (32)
Interest bearing deposits 66 (8) 58 109 1 110 (53) -- (53)
Federal funds sold (63) (24) (87) (26) (1) (27) 51 11 62
Loans, net of unearned income 588 (360) 228 1,165 (15) 1,150 1,116 (30) 1,086
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest earned 1,279 (523) 756 1,002 (58) 944 1,295 145 1,440
INTEREST EXPENSE ON:
- -----------------------
Time deposits 392 (213) 179 273 138 411 480 179 659
Savings deposits 156 (58) 98 54 114 168 45 60 105
Interest bearing demand deposits 37 (102) (65) (5) (33) (38) 4 (10) (6)
Federal funds purchased and
Repurchase agreements 83 (17) 66 55 (17) 38 48 14 62
------- ------- ------- ------- ------- ------- ------ ------- -------
Total interest paid 668 (390) 278 377 202 579 577 243 820
------- ------- ------- ------- ------- ------- ------ ------- -------
Net interest differential $ 611 $ (133) $ 478 $ 625 $ (260) $ 365 $ 718 $ (98) $ 620
======= ======= ======= ======= ======= ======= ====== ======= =======
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 1999, 1998, 1997, and 1996,
respectively.
Obligations of states and
political subdivisions:
Investment securities $ 265 $ (57) $ 208 $ 216 $ (19) $ 197 $ 51 $ (23) $ 28
Loans 597 (378) 219 1,179 18 1,197 1,127 (21) 1,106
======= ======= ======= ======= ======= ======= ====== ======= =======
Total interest earned $ 1,394 $ (564) $ 830 $ 1,102 $ (32) $ 1,070 $1,327 $ 144 $ 1,471
======= ======= ======= ======= ======= ======= ====== ======= =======
Net interest differential $ 726 $ (174) $ 552 $ 725 $ (234) $ 491 $ 750 $ (99) $ 651
======= ======= ======= ======= ======= ======= ====== ======= =======
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5
59
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Net Interest Income - Continued
Interest and fees on loans and lease financing increased $227,345 or 2.5% from
1998 to 1999 and $1,150,799 or 14.5% from 1997 to 1998. The increased
interest income on loans and lease financing for both years resulted from
increases in the average loan volume of $6,430,000 in 1999 and $12,736,000 in
1998. Increases in residential real estate and commercial loans primarily
contributed to the loan growth in 1999. Growth in commercial, residential
real estate and installment loans primarily contributed to the increase during
1998. The average yield on loans decreased from 9.14% in 1998 to 8.80% in
1999 and decreased from 9.15% in 1997 to 9.14% in 1998.
Interest expense in 1999 increased $278,121 or 5.2% from 1998, compared to an
increase in 1998 of $579,394 or 12.2% from 1997. The increases in interest
expense for both 1999 and 1998 were primarily the result of deposit growth.
During 1999, the average volume of interest bearing deposits increased
$14,248,000 or 11.2% as compared to 1998, and increased $6,931,000 or 5.7% in
1998 as compared to 1997. Average volume increases of interest bearing
deposits during 1999 were primarily the result of the growth in time deposits
and savings deposits. During 1998, the increase in the average volume of
interest bearing deposits was primarily due to the growth in time deposits.
The average yield paid on interest bearing liabilities decreased .25%, from
3.97% in 1998 to 3.72% in 1999, and followed an increase of .20%, from 3.77%
in 1997 to 3.97% in 1998. The decrease in the average yield on interest
bearing liabilities during 1999 was primarily the result of a decrease in the
interest rates paid on time deposits and interest bearing demand deposits.
During 1998, the increase in the average yield on interest bearing liabilities
was primarily the result of an increase in the interest rates paid on 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 4.61%
for 1999, as compared to 4.80% and 4.83% earned during 1998 and 1997,
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 $17,917 in 1999, up 3.7%, from
1998, as compared to an increase of 18.1% from 1997 to 1998. The increase in
service charges in both 1999 and 1998 was primarily due to an increase in the
number of charges assessed on deposit accounts.
The gain on the sale of the building and land by the Holding Company
contributed $301,862 in noninterest income during 1999.
Sales of investment securities by the subsidiary banks are generally limited
to the needs established under the liquidity policies. During 1999, the
subsidiary banks accounted for securities gains of $14,721 and securities
losses of $13,086 and were attributable to sales of securities available for
sale. Additionally, the Holding Company accounted for securities gains of
$11,526 and securities losses of $662 and were attributable to sales of
marketable equity securities. In 1998, the Holding Company accounted for
securities gains of $2,786 and securities losses of $1,608 and were
attributable to sales of marketable equity securities. During 1997, the
subsidiary banks accounted for securities gains of $2,772 and securities
losses of $4,063 and were attributable to sales of securities available for
sale.
Other operating income represents fees from safe deposit box rentals, sales of
checkbooks, sales of cashiers' checks and money orders, utility collections,
ATM charges and card fees, 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 1999, other
operating income was $250,308, a decrease of $44,038 or 15.0% over 1998, and
follows an increase of $69,762, or 31.1%, over 1997. The decrease in other
operating income during 1999 was primarily due to the decrease in other credit
card income and a loss of lease income resulting from the sale of the building
and land by the holding company. In 1998, the increase in ATM charges
primarily contributed to the increase in other operating income.
Non-Interest Expense
Salary and employee benefits are the largest component of noninterest expense.
Salary and employee benefits increased $19,055 or .8% in 1999 as compared to
the same period in 1998. During 1998, salary and employee benefits increased
$134,189 or 5.9% over 1997. The increase in salary and employee benefits in
both 1999 and 1998 was primarily due to normal annual merit adjustments.
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6
60
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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, 1999 and December 31, 1998 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, 1999 December 31, 1998
--------------------------------------------- ----------------------------------------
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 $ -- --% $ 4,504 5.25 % $ -- -- % $ 5,775 6.01 %
After One But
Within Five Years -- -- 18,750 6.16 -- -- 18,815 5.92
After Five But
Within Ten Years -- -- 17,446 6.78 -- -- 10,517 6.23
After Ten Years -- -- -- -- -- -- -- --
---------- ----- ---------- ------ -------- ------ --------- -----
-- -- 40,700 6.33 -- -- 35,107 6.03
States & Political Subdivisions
Within One Year 1,020 6.40 -- -- 950 7.71 -- --
After One But
Within Five Years 3,626 6.67 -- -- 5,099 6.52 -- --
After Five But
Within Ten Years 5,467 6.64 507 7.59 5,121 6.48 516 7.45
After Ten Years 533 6.81 -- -- 180 6.06 -- --
---------- ----- ---------- ------ -------- ------ --------- -----
10,646 6.64 507 7.59 11,350 6.59 516 7.45
Corporate Debt Securities
Within One Year -- -- -- -- -- -- 349 5.94
After One But
Within Five Years -- -- 102 8.42 -- -- 106 7.98
---------- ----- ---------- ------ -------- ------ --------- -----
-- -- 102 8.42 -- -- 455 6.42
Mortgage-Backed Securities -- -- 7,049 6.44 -- -- 6,503 6.35
Equity Securities -- -- 1,091 5.29 -- -- 804 5.30
---------- ----- ---------- ------ -------- ------ --------- -----
Total $ 10,646 6.64 % $ 49,449 6.34 % $11,350 6.59 % $ 43,385 6.09 %
========== ===== ========== ====== ======== ====== ========= =====
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Non-Interest Expense Continued
The major components of other operating expenses include: stationery and
supplies, directors' fees, service expense, postage and transportation, other
taxes, advertising, and regulatory assessment and deposit insurance. Other
operating expenses increased $74,601 or 5.1% in 1999 over 1998 and increased
$155,239 or 11.9% in 1998. The increase in other operating expenses during
1999 was primarily due to the increase in service expense, advertising and
directors' fees offset in part by a decrease in stationery and supplies
expense. Increased other expenses, service expense, stationery and supplies
expense, other taxes and postage expense primarily contributed to the increase
in other operating expenses during 1998.
Income Taxes
Income tax expense for the period ended December 31, 1999 was $1,139,516, an
increase of $187,713 over 1998. The increase was primarily due to the
increase in pre-taxable income of $605,069 in 1999 over 1998. Components of
the income tax expense for December 31, 1999 were $951,643 for federal taxes
and $187,873 for West Virginia corporate net income taxes. Income tax expense
for the period ended December 31, 1998 decreased by $11,053 over 1997. The
decrease in income tax expense during 1998 was primarily due to the increase
in tax exempt income.
For federal income tax purposes, tax-exempt income is based on qualified
state, county, and municipal bonds and loans. Tax-exempt income was $698,249
in 1999; $586,837 in 1998; and $400,081 in 1997. 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 $1,592,000 in 1999; $1,211,000 in 1998; and $1,269,000 in
1997.
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, 1999,
1998 and 1997. Additional information regarding income taxes is contained in
Note 7 to the Consolidated financial statements.
Balance Sheet Analysis
Investments
Investment securities increased $5,360,024 or 9.8% from $54,735,400 at
December 31, 1998, to $60,095,424 at December 31, 1999 and followed an
increase of $9,291,446 or 20.4% from $45,443,954 at December 31, 1997 to
$54,735,400 at December 31, 1998. The increases in investment securities at
December 31, 1999 and 1998 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 81.4% of total securities at December 31, 1999,
as compared to 78.3% at December 31, 1998. 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 $6,063,741 or 14.0% from 1998, and
represented 82% of the investment portfolio at December 31, 1999. The
increase in the available for sale securities was primarily due to the
purchase of U.S. Government agency 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 $703,717 or 6.2% from 1998 and
represented 18% of the investment portfolio as of December 31, 1999. 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.
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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, 1999 and December 31,
1998 (in thousands):
December 31, 1999
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 712 $ 7,564 $ 5,266
Real Estate - construction 73 -- --
--------- --------- ---------
Total $ 785 $ 7,564 $ 5,266
========= ========= =========
December 31, 1998
----------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 858 $ 6,024 $ 6,379
Real Estate - construction 41 -- --
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
The following table presents an analysis of fixed and variable rate loans as
of December 31, 1999 and December 31, 1998 along with the contractual maturities
of loans other than installment loans and residential mortgages (in thousands):
December 31, 1999
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 586 $ 5,564 $ 1,150
Variable Rates 199 2,000 4,116
--------- --------- ---------
Total $ 785 $ 7,564 $ 5,266
========= ========= =========
December 31, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
---------------------------------------
Fixed Rates $ 626 $ 4,922 $ 2,266
Variable Rates 273 1,102 4,113
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
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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 decreased by $1,380,468
at December 31, 1999 and increased by $253,924 at December 31, 1998. The
market value of securities classified as held to maturity was below book value
by $209,270 at December 31, 1999 and above book value by $74,498 at December
31, 1998.
Loans
Loans, net of unearned income, increased $6,933,113 or 6.7% from 1998, and
follows an increase in 1998 of $8,181,666 or 8.6% from 1997. The loan growth
during 1999 can be attributed primarily to increases in residential real
estate loans and commercial loans which increased approximately $4,623,000 and
$3,633,000, respectively. Residential real estate loans increased in 1999
primarily as a result of new purchases and refinancing due to offering
competitive mortgage rates and local servicing. Commercial loans increased
during 1999, primarily in commercial real estate loans, due to refinances by
new and existing customers. Real estate residential loans which include real
estate construction, real estate farmland, and real estate residential loans
comprised thirty-six percent (36%) of the loan portfolio. Commercial loans
which include real estate secured by non-farm, non-residential and commercial
and industrial loans comprised thirty-nine percent (39%) of the loan
portfolio. Installment loans comprised twenty-two percent (22%) of the loan
portfolio. Other loans which include non-rated industrial development
obligations, direct financing leases and other loans comprised three percent
(3%) of the loan portfolio. The changes in the composition of the loan
portfolio from 1998 to 1999 were a 2% increase in real estate residential
loans, a 1% increase in commercial loans, a 2% decrease in installment loans
and a 1% decrease in other loans. From 1997 to 1998, the changes in the
composition of the loan portfolio were a 1% increase in installment loans and
a 1% decrease in residential real estate 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 $892,000 at December 31, 1999 as compared with
$664,000 at December 31, 1998. Total non-performing loans increased $228,000
in 1999, as compared to the decrease of $175,000 in 1998. The increase in
non-performing loans in 1999 was primarily due to an increase in non-accrual
loans. Non-accrual loans were $573,000 or .5% of total loans outstanding as
of December 31, 1999, as compared to $396,000 or .4% at December 31, 1998.
The non-accrual loans in 1999 primarily were commercial real-estate loans
which are secured by properties believed to have adequate values to cover the
outstanding loan balances. There were no loans classified as renegotiated at
December 31, 1999 and 1998. Loans past due 90 days or more increased $51,000
during 1999, after increasing $49,000 during 1998. Loans past due 90 days or
more at year-end were primarily consumer loans. There was no other real
estate owned at December 31, 1999 and 1998. Other real estate owned decreased
$80,000 in 1998 over 1997 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 1.0% and 1.1% of
outstanding loans as of December 31, 1999 and 1998, respectively. Net loan
charge-offs were $323,192 in 1999, compared to $350,851 in 1998 and $73,039 in
1997. The net loan charge-offs in 1999, 1998 and 1997 were primarily consumer
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 $348,000 for the year ended
December 31, 1999 compared to $256,000, and $130,500 at December 31, 1998 and
1997, respectively. The increased loan growth combined with the increase in
net charge-offs and in nonperforming assets in 1999 and 1998 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.
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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,
----------------------------------------------------------
1999 1998 1997 1996 1995
Past Due 90 Days or More:
Real Estate - residential $ 66 $ 76 $ 45 $ 250 $ 33
Commercial 11 4 70 2 -
Installment 242 188 104 48 60
------ ------ ------- ------ ------
$ 319 $ 268 $ 219 $ 300 $ 93
------ ------ ------- ------ ------
Non-accrual:
Real Estate - residential $ 17 $ 106 $ 139 $ 26 $ 56
Commercial 440 184 353 299 256
Installment 116 106 48 28 39
------ ------ ------- ------ ------
$ 573 $ 396 $ 540 $ 353 $ 351
------ ------ ------- ------ ------
Other Real Estate $ -- $ -- $ 80 $ 49 $ 64
------ ------ ------- ------ ------
Total non-performing assets $ 892 $ 664 $ 839 $ 702 $ 508
====== ====== ======= ====== ======
Total non-performing assets
to total loans and
other real estate 0.81% 0.64% 0.88% 0.87% 0.70%
Generally, all Banks recognize interest income on the accrual basis, except
for certain loans which are placed on a non-accrual status. Loans are placed
on a non-accrual status, when in the opinion of management doubt exists as to
its collectibility. In accordance with the Office of the Comptroller of the
Currency Policy, banks may not accrue interest on any loan which either the
principal or interest is past due 90 days or more unless the loan is both
well secured and in the process of collection.
The amount of interest income that would have been recognized had the loans
performed in accordance with their original terms was approximately $43,000
and $33,000 for the periods ended December 31, 1999 and 1998, respectively.
As of December 31, 1999, 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.
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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,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,123 $ 1,218 $ 1,160 $ 1,149 $ 947
Loans Charged Off:
Real Estate - residential 14 65 18 35 1
Commercial 16 134 -- -- 11
Installment 315 173 67 49 44
--------- --------- --------- --------- ---------
345 372 85 84 56
Recoveries:
Real Estate - residential - 5 -- -- --
Commercial - - 3 1 194
Installment 22 16 9 24 15
--------- --------- --------- --------- ---------
22 21 12 25 209
Net Charge-offs 323 351 73 59 (153)
Additions Charged to Operations 348 256 131 70 49
--------- --------- --------- --------- ---------
Balance at end of period: $ 1,148 $ 1,123 $ 1,218 $ 1,160 $ 1,149
========= ========= ========= ========= =========
Average Loans Outstanding $ 105,775 $ 99,345 $ 86,609 $ 74,469 $ 66,058
========= ========= ========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period 0.31% 0.35% 0.08% 0.08% (0.23)%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.04% 1.08% 1.28% 1.44% 1.60%
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.
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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, 1999 ( 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,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
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 $ 238 36.2% $ 208 34.2% $ 202 34.6% $ 192 36.5% $ 215 39.9%
Commercial 490 38.7 490 37.8 622 38.0 619 39.1 618 36.5
Installment 400 22.2 374 23.8 343 23.6 298 21.6 265 20.0
Others 20 2.9 20 4.2 20 3.8 20 2.8 20 3.6
Unallocated -- -- 31 -- 31 -- 31 -- 31 --
------ ----- ------ ----- ------ ----- ---- ----- ---- -----
Total $1,148 100.0% $1,123 100.0% $1,218 100.0% $1,160 100.0% $1,149 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
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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 2000 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 $161,557,932 at December 31,
1999 as compared to $147,784,819 at December 31, 1998, an increase of 9.3%,
and follows an increase of 7.8% between 1998 and 1997. The increase in total
deposits during 1999 and 1998 was primarily in time deposits and savings
deposits. Time deposits grew by $7,706,257 or 12.4% in 1999, and follows an
increase of $4,280,219 or 7.4% in 1998. Time deposits of $100,000 or more
increased approximately $5,345,000 at December 31, 1999 as compared to
December 31, 1998. The increase in time deposits was primarily the result of
special promotions offered by the subsidiary banks throughout 1999 and 1998.
Savings deposits increased by $7,596,879 or 16.8% during 1999, and follows an
increase of $3,238,772 or 7.7% in 1998. The growth in savings deposits was
mainly due to the increase in the demand for the Progressive Gold money market
product by depositors. At December 31, 1999, noninterest bearing deposits
comprised 9% of total deposits and interest bearing deposits which include
NOW, money market, savings and time deposits comprised 91% of total deposits.
The change in the deposit mix from December 31, 1998 to December 31, 1999 was
a 1% increase in interest bearing deposits and a 1% decrease in noninterest
bearing deposits.
Federal Funds Purchased and Repurchase Agreements
Federal funds purchased and repurchase agreements are short-term borrowings of
which repurchase agreements represent the largest component. Repurchase
agreements were $9,923,925 at December 31, 1999, an increase of $2,929,901
over 1998. The increase in repurchase agreements in 1999 was primarily due to
an increase in balances maintained by existing commercial customers.
Capital Resources
A strong capital base is vital to continued profitability because it promotes
depositor and investor confidence and provides a solid foundation for future
growth. Stockholders' equity increased 10.4% in 1999 entirely from current
earnings after quarterly dividends, and a decrease of 6.6% resulting from the
effect of the change in the net unrealized gain (loss) on securities available
for sale. The increase in stockholders' equity in 1999 follows an increase of
9.2% in 1998 entirely from current earnings after quarterly dividends, and an
increase of .2% resulting from the effect of the change in the net unrealized
gain (loss) on securities available for sale. Stockholders' equity amounted
to 8.5% and 9.0% of total assets at the end of 1999 and 1998, 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.
The Holding Company declared a 6 for 5 stock split in the form of a 20% common
stock dividend on October 12, 1999 to stockholders of record as of November 1,
1999. As a result, 251,274 shares were issued on November 18, 1999. On
September 8, 1998, the Holding Company declared a four percent common stock
dividend to stockholders of record on October 1, 1998. Accordingly, 48,167
shares of common stock were issued on October 26, 1998.
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.
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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 $(18,996,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
December 31, 1999. 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, 1999
(less (greater Non-
than) 3 3 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
-------- -------- ------- ------- -------- ---------
ASSETS:
Fed Funds Sold $ 2,485 $ $ $ $ $ 2,485
Investments 3,831 5,384 11,176 39,704 60,095
Loans 23,910 27,063 32,067 26,973 476 110,489
Other Assets 6,478 10,774 17,252
Allowance for Loan
and Lease Losses (1,148) (1,148)
-------- -------- ------- ------- -------- ---------
TOTAL ASSETS: $ 36,704 $ 32,447 $43,243 $66,677 $ 10,102 $ 189,173
======== ======== ======= ======= ======== =========
NOW and Savings $ 1,799 $ 5,517 $ 8,188 $38,436 $ $ 53,940
MMDA 22,894 22,894
CD's < 100,000 10,851 24,541 15,850 3,099 54,341
CD's > 100,000 7,144 5,127 2,983 349 15,603
Demand Deposits 14,780 14,780
Other Liabilities 1,285 1,285
Repurchase Agreements 10,274 10,274
Stockholders' Equity 16,056 16,056
-------- -------- ------- ------- -------- ---------
TOTAL LIABILITIES
AND CAPITAL: $ 52,962 $ 35,185 $27,021 $41,884 $ 32,121 $ 189,173
======== ======== ======= ======= ======== =========
GAP (16,258) (2,738) 16,222 24,793 (22,019)
GAP/ Total Assets (8.59%) (1.45%) 8.58% 13.11% (11.64%)
Cumulative GAP (16,258) (18,996) (2,774) 22,019 0
Cumulative GAP/Total Assets (8.59%) (10.04%) (1.47%) 11.64% 0.00%
The above analysis contains repricing and maturity assumptions and estimates
used by management.
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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
$49,449,312 classified as available for sale at December 31, 1999. 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, 1999, Progressive Bank, N.A. and Progressive Bank, N.A.-
Buckhannon, had an available line of approximately $4,280,000 and $551,000,
respectively, without purchasing any additional capital stock from the FHLB.
As of December 31, 1999 borrowings outstanding pursuant to these agreements
totaled $350,000.
At December 31, 1999 and December 31, 1998, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $11,071,000
and $8,070,000, respectively. As of December 31, 1999, management placed a
high probability for required funding within one year of approximately
$7,870,000. Approximately $3,065,000 is principally unused home equity and
credit card lines on which management places a low probability for required
funding.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities" which provides
requirements for the proper accounting, reporting and financial statement
presentation of derivative instruments and hedging activities. Under the
standard, all derivatives are to be measured at fair value and recognized as
either assets or liabilities in the financial statements. Among other items,
SFAS No. 133 also permits certain reclassification of securities from held to
maturity to the available for sale classification. Any unrealized holding gain
or loss on such transferred securities shall be reported consistent with the
requirements of SFAS No. 115, "Accounting for Certain Investment in Debt and
Equity Securities." Subsequently, the FASB issued SFAS No. 137, which amended
the effective date of SFAS No. 133 to become effective for fiscal quarters of
all fiscal years beginning after June 15, 2000. Management anticipates that
the adoption of SFAS No. 133 will not have a material impact on the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65,
"Accounting for Certain Investments in Debt and Equity Securities" to require
that after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. SFAS No. 134 was effective for the first fiscal
quarter beginning after December 15, 1998. As the subsidiary banks are not
engaged in the activities required under SFAS No. 134, adoption of SFAS No.
134 did not have any impact on the Company.
Market Information of Common Stock
First West Virginia Bancorp, Inc's common stock has been traded on the
American Stock Exchange primary list since June 20, 1995, and began trading
under the symbol of FWV. The following table sets forth the high and low
sales prices of the common stock during the respective quarters. The stock
prices reflected have been adjusted for the effect of the twenty percent (20%)
common stock dividend to shareholders of record on November 1, 1999.
Stock Prices
Low High
1999
4th Quarter $ 16.10 $ 18.00
3rd Quarter $ 16.40 $ 17.80
2nd Quarter $ 17.00 $ 18.40
1st Quarter $ 18.40 $ 22.40
1998
4th Quarter $ 18.90 $ 23.10
3rd Quarter $ 20.00 $ 23.90
2nd Quarter $ 22.70 $ 24.80
1st Quarter $ 19.20 $ 22.50
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First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- --------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
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 .49 .38 .39
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $3,017,292 $ 3,062,636 $ 3,148,133 $ 3,224,052
Total interest expense 1,276,939 1,325,792 1,363,263 1,357,847
Net interest income 1,740,353 1,736,844 1,784,870 1,866,205
Provision for loan losses 46,500 56,500 76,500 76,500
Investment Securities Gain (Loss) (1,608) -- 2,786 -
Total other income 191,504 183,293 215,373 195,010
Total other expenses 1,109,594 1,125,921 1,172,069 1,266,218
Income before income taxes 774,155 737,716 754,460 718,497
Net income 519,740 501,192 515,715 496,378
Net income per share (1) .35 .33 .34 .33
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $ 2,698,339 $ 2,845,165 $ 2,954,722 $ 3,008,583
Total interest expense 1,087,969 1,161,352 1,224,185 1,270,941
Net interest income 1,610,370 1,683,813 1,730,537 1,737,642
Provision for loan losses 25,500 36,000 34,500 34,500
Investment Securities Gain (Loss) -- - -- (1,291)
Total other income 174,106 153,694 172,615 139,807
Total other expenses 1,044,887 1,091,516 1,116,343 1,124,623
Income before income taxes 714,089 709,991 752,309 717,035
Net income 476,607 474,485 502,677 476,799
Net income per share (1) .32 .31 .33 .32
(1) Adjusted for 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, and
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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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.
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72
SNODGRASS
Certified Public Accountants
Independent Auditor's Report
----------------------------
Board of Directors
First West Virginia Bancorp, Inc.
Wheeling, West Virginia
We have audited the accompanying consolidated balance sheets of First West
Virginia Bancorp, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First West Virginia Bancorp,
Inc. and subsidiaries at December 31, 1999 and 1998, and the results of its
operations, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/S. R. Snodgrass, A.C.
Wheeling, West Virginia
January 21, 2000
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile:
304-233-3062
19
73
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
1999 1998
------------ ------------
ASSETS
Cash and due from banks $ 5,335,861 $ 4,720,682
Due from banks - interest bearing 6,478,406 299,430
------------ ------------
Total cash and cash equivalents 11,814,267 5,020,112
Federal funds sold 2,485,000 4,092,000
Investment securities:
Available-for-sale (at fair value) 49,449,312 43,385,571
Held-to-maturity (fair value of $10,436,842
and $11,424,327, respectively) 10,646,112 11,349,829
Loans, net of unearned income 110,488,432 103,555,319
Less allowance for possible loan losses (1,147,720) (1,122,912)
------------ ------------
Net loans 109,340,712 102,432,407
Premises and equipment, net 2,841,337 3,204,730
Accrued income receivable 1,356,419 1,242,606
Other assets 1,239,475 667,824
------------ ------------
Total assets $189,172,634 $171,395,079
============ ============
LIABILITIES
Noninterest bearing deposits:
Demand $ 14,780,305 $ 15,141,249
Interest bearing deposits:
Demand 23,961,233 25,130,312
Savings 52,872,689 45,275,810
Time 69,943,705 62,237,448
------------ ------------
Total deposits 161,557,932 147,784,819
Federal funds purchased and repurchase agreements 10,273,925 6,994,024
Accrued interest on deposits 499,352 472,097
Other liabilities 785,953 683,201
------------ ------------
Total liabilities 173,117,162 155,934,141
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - 2,000,000 shares
authorized at $5 par value:
1,508,526 shares issued at December 31, 1999, and
1,257,252 shares issued at December 31, 1998 7,542,630 6,286,260
Surplus 4,739,381 4,739,381
Retained earnings 4,638,742 4,275,249
Accumulated other comprehensive income (865,281) 160,048
------------ ------------
Total stockholders' equity 16,055,472 15,460,938
------------ ------------
Total liabilities and stockholders' equity $189,172,634 $171,395,079
============ ============
The accompanying notes are an integral part of the financial statements.
20
74
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1999 1998 1997
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans
and lease financing:
Taxable $ 9,114,144 $ 8,873,747 $ 7,791,705
Tax-exempt 191,674 204,726 135,969
Investment securities:
Taxable 2,917,399 2,494,614 2,905,180
Tax-exempt 506,575 382,111 264,112
Dividends 37,813 28,482 22,862
Other interest income 195,545 138,252 29,843
Interest on federal funds sold 243,531 330,181 357,138
----------- ----------- -----------
Total interest income 13,206,681 12,452,113 11,506,809
----------- ----------- -----------
INTEREST EXPENSE
Deposits 5,309,346 5,096,756 4,555,542
Other borrowings 292,616 227,085 188,905
----------- ----------- -----------
Total interest expense 5,601,962 5,323,841 4,744,447
----------- ----------- -----------
Net interest income 7,604,719 7,128,272 6,762,362
PROVISION FOR POSSIBLE LOAN LOSSES 348,000 256,000 130,500
----------- ----------- -----------
Net interest income after provision
for possible loan losses 7,256,719 6,872,272 6,631,862
----------- ----------- -----------
NONINTEREST INCOME
Service charges and other fees 508,751 490,834 415,638
Gain on sale of building and land 301,862 - -
Securities gains (losses) 12,499 1,178 (1,291)
Other operating income 250,308 294,346 224,584
----------- ----------- -----------
Total noninterest income 1,073,420 786,358 638,931
----------- ----------- -----------
NONINTEREST EXPENSE
Salary and employee benefits 2,433,917 2,414,862 2,280,673
Net occupancy expense of premises 768,917 796,133 789,128
Other operating expenses 1,537,408 1,462,807 1,307,568
----------- ----------- -----------
Total noninterest expense 4,740,242 4,673,802 4,377,369
----------- ----------- -----------
Income before income taxes 3,589,897 2,984,828 2,893,424
INCOME TAXES 1,139,516 951,803 962,856
----------- ----------- -----------
Net income $ 2,450,381 $ 2,033,025 $ 1,930,568
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,508,526 1,508,526 1,508,526
=========== =========== ===========
EARNINGS PER COMMON SHARE $1.62 $1.35 $1.28
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
21
75
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, 1996 806,107 $4,030,535 $3,764,000 $ 4,935,303 $ (80,560) $12,649,278
Comprehensive income
Net income - - - 1,930,568 - $ 1,930,568 1,930,568
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - 204,054 204,054 204,054
-----------
Comprehensive income $ 2,134,622
===========
Cash dividend ($.43 per share) - - - (652,936) - (652,936)
Cash paid in lieu of fractional
shares on stock dividend - - - (1,969) - (1,969)
50% common stock dividend
at par value 402,978 2,014,890 - (2,014,890) - -
---------- ---------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1997 1,209,085 6,045,425 3,764,000 4,196,076 123,494 14,128,995
Comprehensive income
Net income - - - 2,033,025 - $ 2,033,025 2,033,025
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - 36,554 36,554 36,554
-----------
Comprehensive income $ 2,069,579
===========
Cash dividend ($.49 per share) - - - (732,677) - (732,677)
Cash paid in lieu of fractional
shares on stock dividend - - - (4,959) - (4,959)
4% common stock dividend
at fair market value 48,167 240,835 975,381 (1,216,216) - -
---------- ---------- ---------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1998 1,257,252 6,286,260 4,739,381 4,275,249 160,048 15,460,938
Comprehensive income
Net income - - - 2,450,381 - $ 2,450,381 2,450,381
Other comprehensive income,
net of tax:
Unrealized losses on securities
net of reclassification
adjustment (see disclosure) - - - - (1,025,329) (1,025,329) (1,025,329)
-----------
Comprehensive income $ 1,425,052
===========
Cash dividend ($.55 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
========== ========== ========== ========== ========== ===========
1999 1998 1997
----------- ---------- ----------
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during period $(1,017,495) $ 37,296 $ 203,240
Less reclassification adjustment for
gains (losses) included in net income 7,834 742 (814)
----------- ---------- -----------
Net unrealized gains (losses)
on securities $(1,025,329) $ 36,554 $ 204,054
=========== ========== ==========
The accompanying notes are an integral part of the financial statements.
22
76
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,450,381 $ 2,033,025 $ 1,930,568
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 348,000 256,000 130,500
Depreciation and amortization 357,987 377,721 370,743
Amortization (accretion) of
investment securities, net (105,679) (83,194) (47,749)
Investment security losses (gains) (12,499) (1,178) 1,291
Gain on sale of building and land (301,862) - -
Decrease (increase) in
interest receivable (113,813) (166,905) (127,675)
Increase (decrease) in interest payable 27,255 39,227 47,581
Other, net 140,163 163,445 (85,201)
----------- ----------- -----------
Net cash provided by
operating activities 2,789,933 2,618,141 2,220,058
----------- ----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease
in federal funds sold 1,607,000 2,840,000 (1,471,000)
Net (increase) decrease in loans,
net of charge-offs (7,277,881) (8,554,313) (15,042,430)
Proceeds from sales of securities
available-for-sale 2,660,611 6,543 1,487,344
Proceeds from maturities of securities
available-for-sale 44,681,367 34,648,171 23,350,000
Proceeds from maturities of securities
held-to-maturity 2,716,000 976,000 2,010,000
Principal collected on mortgage-
backed securities 4,811,188 2,962,199 944,930
Purchases of securities available-
for-sale (59,728,039) (40,194,992) (21,194,040)
Purchases of securities held-
to-maturity (2,017,367) (7,546,999) (1,233,644)
Recoveries on loans previously
charged-off 21,576 21,796 12,418
Purchases of premises and equipment (110,881) (493,316) (202,358)
Proceeds from sales of premises
and equipment 418,152 - -
----------- ----------- -----------
Net cash used in
investing activities (12,218,274) (15,334,911) (11,338,780)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 13,773,113 10,740,006 11,773,745
Dividends paid (830,518) (737,635) (654,905)
Increase (decrease ) in short-
term borrowings 3,279,901 2,919,028 (1,855,695)
----------- ----------- -----------
Net cash provided by
financing activities 16,222,496 12,921,399 9,263,145
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 6,794,155 204,629 144,423
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,020,112 4,815,483 4,671,060
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $11,814,267 $ 5,020,112 $ 4,815,483
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 5,574,707 $ 5,284,614 $ 4,696,866
Cash paid for income taxes 1,190,631 1,055,685 1,081,701
The accompanying notes are an integral part of the financial statements
23
77
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First West Virginia Bancorp, Inc.
(the "Corporation") and its subsidiaries conform with generally accepted
accounting principles and with general practices within the banking industry.
The following is a summary of the significant policies:
Nature of Operations
- --------------------
First West Virginia Bancorp, Inc. provides a variety of banking services to
individuals and businesses through the branch network of its two affiliate
banks (the "Banks"). The Banks operate seven full service branches located in
Wheeling (2), Wellsburg, Moundsville, Buckhannon, and Weston, West Virginia
and Bellaire, Ohio. Primary deposit products consist of checking accounts,
savings accounts, and certificates of deposit. Primary lending products
consist of commercial and residential real estate loans, consumer loans, and
business loans.
Principles of Consolidation
- ----------------------------
The consolidated financial statements of the Corporation include the financial
statements of the parent and its wholly-owned subsidiaries, Progressive Bank,
N.A. and Progressive Bank, N.A.-Buckhannon. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Investment Securities
- ----------------------
Investment securities are classified based on management's intention on the
date of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held to maturity and reported at amortized
cost. The Corporation uses the interest method to amortize premiums and
accrete discounts. All other securities are classified as available for sale
and carried at fair value, with net unrealized gains and losses included in
stockholders' equity on an after-tax basis. The Corporation does not
currently conduct short term purchase and sale transactions of investment
securities which would be classified as trading securities.
Gains or losses on dispositions of investment securities are computed by using
the adjusted cost of the specific securities sold. Securities gains or losses
are shown separately as non-interest income in the consolidated statements of
income.
Interest and Fees on Loans
- --------------------------
Interest income on loans is accrued based on the principal outstanding. It is
the Corporation's policy to discontinue the accrual of interest when either
the principal or interest is past due 90 days or more, unless the loan is both
well secured and in the process of collection.
The Corporation accounts for impaired loans in accordance with the provisions
of FAS No. 114 and No. 118, "Accounting for Creditors for Impairment of a
Loan." It is the Corporation's policy not to recognize interest income on
specific impaired loans unless the likelihood of future loss is remote.
Interest payments received on such loans are applied as a reduction of the
loan principal balance. Since the adoption of FAS Nos. 114 and 118, the
Corporation had no loans which management has determined to be impaired.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount amortized over the contractual life of the
related loans or commitments as an adjustment of the related loan's yield.
Direct Financing Leases
- -----------------------
The leasing operation of the Corporation consists of the leasing of various
types of equipment under leases classified as direct financing leases.
Interest and service charges, net of initial direct costs, are deferred and
reported as income in decreasing amounts over the term of the lease so as to
provide an approximate constant yield on the outstanding principal balance.
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
24
78
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 on the estimated useful lives of the
assets.
When units of property are disposed of, the premises and equipment accounts
are relieved of the cost and the accumulated depreciation related to such
units. Any resulting gains or losses are credited to or charged against
income. Cost of repairs and maintenance is charged to expense as incurred.
Major renewals and betterments are capitalized at cost.
Income Taxes
- ------------
The Corporation accounts for income taxes under the asset and liability
method. Income tax expense is reported as the total of current income taxes
payable and the net change in deferred income taxes provided for temporary
differences. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for
financial reporting purposes and the values used for income tax purposes.
Deferred income taxes are recorded at the statutory Federal and state tax
rates in effect at the time that the temporary differences are expected to
reverse.
The Corporation files a consolidated Federal income tax return which includes
all its subsidiaries. Income tax expense is allocated among the parent
company and its subsidiaries as if each had filed a separate return.
Cash Flows
- ----------
Cash and cash equivalents consist of cash on hand and amounts due from banks.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings Per Common Share
- -------------------------
Earnings per common share are calculated by dividing net income by the
weighted-average number of shares of common stock outstanding during the year.
The Corporation has no securities which would be considered potential common
stock.
Stock Dividends
- ---------------
On September 9, 1997, the Corporation declared a 50% stock dividend to
stockholders of record on October 1, 1997. On September 8, 1998, the
Corporation declared a 4% stock dividend to stockholders of record on October
1, 1998. On October 12, 1999, the Corporation declared a 20% stock dividend
to stockholders of record on November 1, 1999. All common share data includes
the effect of the stock dividends.
Purchase Method of Accounting
- -----------------------------
Net assets of organizations acquired in purchase transactions are recorded at
fair value at the date of the transaction. The cost of core deposits and the
excess of cost over net assets of affiliates purchased is being amortized over
a ten year period on the straight-line method. Annual amortization expense
was approximately $4,000 for both 1998 and 1997. There was no amortization
expense in 1999.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
25
79
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES
The estimated market values of investment securities are as follows at
December 31, 1999 and 1998:
December 31, 1999
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Securities held to maturity: (Expressed in Thousands)
---------------------------
Obligations of states and political subdivisions $ 10,646 $ 12 $ (221) $ 10,437
---------- ---------- ---------- ----------
Total held to maturity 10,646 12 (221) 10,437
---------- ---------- ---------- ----------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 42,072 - (1,372) 40,700
Obligations of states and political subdivisions 504 3 - 507
Corporate debt securities 102 - - 102
Mortgage-backed securities 7,153 1 (105) 7,049
Equity securities 999 125 (33) 1,091
---------- ---------- ---------- ----------
Total available for sale 50,830 129 (1,510) 49,449
---------- ---------- ---------- ----------
Total $ 61,476 $ 141 $ (1,731) $ 59,886
========== ========== ========== ==========
December 31, 1998
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
Securities held to maturity: (Expressed in Thousands)
----------------------------
Obligations of states and political subdivisions $ 11,350 $ 108 $ (34) $ 11,424
---------- ---------- ---------- ----------
Total held to maturity 11,350 108 (34) 11,424
---------- ---------- ---------- ----------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 34,942 219 (54) 35,107
Obligations of states and political subdivisions 504 12 - 516
Corporate debt securities 453 4 (2) 455
Mortgage-backed securities 6,461 51 (9) 6,503
Equity securities 772 49 (17) 804
---------- ---------- ---------- ----------
Total available for sale 43,132 335 (82) 43,385
---------- ---------- ---------- ----------
Total $ 54,482 $ 443 $ (116) $ 54,809
========== ========== ========== ==========
26
80
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1999, 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 $ 1,020 $ 1,021 $ 4,518 $ 4,504
Due after one year through five years 3,626 3,609 19,353 18,852
Due after five years through ten years 5,467 5,302 18,807 17,953
Due after ten years 533 505 -- --
--------- --------- --------- ---------
10,646 10,437 42,678 41,309
Mortgage-backed securities -- -- 7,153 7,049
Equity securities -- -- 999 1,091
--------- --------- --------- ---------
Total $ 10,646 $ 10,437 $ 50,830 $ 49,449
========= ========= ========= =========
Proceeds from sales of securities available for sale during the years ended
December 31, 1999, 1998, and 1997, were $2,660,611, $6,543, and $1,487,344,
respectively. Gross gains of $26,247 and gross losses of $13,748 in 1999;
gross gains of $2,786 and gross losses of $1,608 in 1998; and gross gains of
$2,772 and gross losses of $4,063 in 1997, were realized on those sales.
Assets carried at $28,994,000 and $24,687,000 at December 31, 1999 and 1998,
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, 1999 and 1998, are as follows:
(Expressed in Thousands)
1999 1998
---------- ----------
Real estate-construction $ 73 $ 41
Real estate-farmland 79 133
Real estate-residential 39,898 35,253
Real estate-secured by non-farm, non-residential 29,218 25,866
Commercial and industrial loans 13,542 13,261
Installment and other loans to individuals 24,513 24,722
Non-rated industrial development obligations 2,867 3,563
Other loans 396 819
---------- ----------
Total 110,586 103,658
Less unearned interest and deferred fees 97 103
---------- ----------
Net loans $ 110,489 $ 103,555
========== ==========
27
81
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 3 - LOANS AND LEASES (CONTINUED)
The Corporation had no loans at December 31, 1999 and 1998, that were
specifically classified as impaired. Non-accrual loans amounted to $573,000
and $396,000 at December 31, 1999 and 1998, respectively. The amount of
interest income that would have been recognized had the loans performed in
accordance with their original terms was $43,000 and $33,000 for 1999 and
1998, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
December 31,
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 1,122,912 $ 1,217,763 $ 1,160,302
Additions charged to operating expense 348,000 256,000 130,500
Recoveries 21,576 21,796 12,418
----------- ----------- -----------
Total 1,492,488 1,495,559 1,303,220
Less loans charged-off 344,768 372,647 85,457
----------- ----------- -----------
Balance, end of year $ 1,147,720 $ 1,122,912 $ 1,217,763
=========== =========== ===========
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
1999 1998 Years
----------- ----------- -----------
Land $ 1,071,451 $ 1,116,585
Land improvements 242,089 231,554 20
Leasehold improvements 396,898 396,898 25
Buildings 2,748,067 2,938,842 20 - 50
Furniture, fixtures & equipment 2,270,297 2,199,750 3 - 20
----------- -----------
Total 6,728,802 6,883,629
Less accumulated depreciation 3,887,465 3,678,899
----------- -----------
Premises and equipment, net $ 2,841,337 $ 3,204,730
=========== ===========
Charges to operations for depreciation approximated $357,987, $373,673, and
$366,695 for 1999, 1998, and 1997, respectively.
28
82
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 6 - DEPOSITS
The composition of the banks' deposits at December 31 follows:
(Expressed in Thousands)
1999
--------------------------------------------------------------
Demand
----------------------------
Noninterest Interest
Bearing Bearing Savings Time
----------- ----------- ----------- -----------
Individuals, partnerships and corporations $ 13,184 $ 21,098 $ 50,718 $ 67,695
United States Government 36 - - -
States and political subdivisions 246 2,863 2,155 2,239
Commercial banks - - - -
Other depository institutions 233 - - 10
Certified and official checks 1,081 - - -
----------- ----------- ----------- -----------
Total $ 14,780 $ 23,961 $ 52,873 $ 69,944
=========== =========== =========== ===========
(Expressed in Thousands)
1998
------------------------------------------------------------
Demand
---------------------------
Noninterest Interest
Bearing Bearing Savings Time
----------- ----------- ----------- -----------
Individuals, partnerships and corporations $ 13,876 $ 22,213 $ 43,717 $ 60,150
United States Government 65 - - -
States and political subdivisions 249 2,917 1,559 1,872
Commercial banks - - - -
Other depository institutions 119 - - 216
Certified and official checks 832 - - -
----------- ----------- ----------- -----------
Total $ 15,141 $ 25,130 $ 45,276 $ 62,238
=========== =========== =========== ===========
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $15,603,000 and $10,258,000 at
December 31, 1999 and 1998, respectively.
A maturity distribution of time certificates of deposit of $100,000 or more
at December 31, 1999, follows:
Due in three months or less $ 6,862,000
Due after three months through six months 2,129,000
Due after six months through twelve months 2,916,000
Due after one year through five years 3,696,000
------------
Total $ 15,603,000
============
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
1999 1998 1997
----------- ----------- -----------
Currently payable:
Federal $ 1,002,894 $ 849,935 $ 928,070
State 198,482 178,101 154,279
Deferred:
Federal (51,252) (65,899) (103,896)
State (10,608) (10,334) (15,597)
----------- ----------- -----------
Income tax expense $ 1,139,516 $ 951,803 $ 962,856
=========== =========== ===========
29
83
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 7 - INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax asset
at December 31:
1999 1998
----------- -----------
Allowance for loan losses $ 289,143 $ 280,709
Deferred loan fees 33,017 34,896
Accrued interest on non-performing loans 18,551 39,432
Deferred compensation 127,766 98,815
Deferred directors fees 24,815 21,802
Depreciation 7,654 (27,832)
Deferred state income tax (25,897) (22,291)
Other, net (2,920) (4,654)
----------- -----------
Total deferred tax asset - federal 472,129 420,877
Total deferred tax asset - state 76,169 65,561
----------- -----------
548,298 486,438
Deferred tax assets (liabilities) arising from market
adjustments of securities available for sale
Federal 445,750 (82,449)
State 69,437 (11,427)
----------- -----------
Total deferred tax assets $ 1,063,485 $ 392,562
=========== ===========
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:
1999 1998 1997
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
---------- ---- ---------- ---- ---------- ----
Computed tax at statutory
Federal rate $1,220,565 34.0 % $1,014,842 34.0 % $ 983,764 34.0 %
Plus state income taxes net
Of federal tax benefits 123,996 3.5 110,726 3.7 91,530 3.2
---------- ---- ---------- ---- ---------- ----
1,344,561 37.5 1,125,568 37.7 1,075,294 37.2
Increase (decrease) in taxes
resulting from:
Tax exempt income (237,451) (6.6) (199,870) (6.6) (137,389) (4.7)
Nondeductible interest expense 30,095 0.8 25,260 0.8 16,602 0.6
Nondeductible goodwill - 0.0 1,376 0.0 1,376 0.0
Others - net 2,311 0.0 (531) 0.0 6,973 0.2
---------- ---- ---------- ---- ---------- ----
Actual tax expense $1,139,516 31.7 % $ 951,803 31.9 % $ 962,856 33.3 %
========== ==== ========== ==== ========== ====
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 $123,700, $143,100, and
$127,600 for the years ended December 31, 1999, 1998, and 1997, respectively.
In 1998, the Corporation amended the profit-sharing plan to add a 401(k)
feature. The Corporation matches a portion of the employee's contribution up
to 4% of their salary. The expense related to the 401(k) plan was $20,693 in
1999 and $15,119 in 1998.
30
84
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
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:
1999 1998 1997
----------- ----------- -----------
Balance at end of year $ 9,923,925 $ 6,994,024 $ 4,074,996
Average balance during the year 8,984,571 6,598,665 5,117,789
Maximum month-end balance 11,122,282 9,218,303 5,922,489
Weighted-average rate during the year 3.24% 3.44% 3.69%
Rate at December 31 1.77% 2.31% 3.22%
The subsidiary banks had no significant activity in federal funds purchased
during 1998 and 1997. Information related to federal funds purchased for
1999 is summarized below:
Balance at end of year $ 350,000
Average balance during the year 27,674
Maximum month-end balance 650,000
Weighted-average rate during the year 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:
1999 1998
------------ ------------
Commitments to extend credit $ 11,046,000 $ 7,978,000
Standby letters of credit 25,000 92,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Corporation
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Corporation upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party.
These guarantees are primarily issued to support public and private borrowing
arrangements. The standby letters of credit expire in 2000. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
As members of the Federal Home Loan Bank of Pittsburgh (FHLB), the subsidiary
Banks have the ability to borrow funds from the FHLB at prevailing interest
rates. At December 31, 1999, the subsidiary Banks had unused lines of credit
available with the FHLB in the aggregate amount of $4,831,000. Outstanding
borrowings at December 31, 1999, amounted to $350,000.
31
85
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
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 $4,262,517 at December 31, 1999, and
$4,320,419 at December 31, 1998.
The following is an analysis of loan activity to directors, executive
officers, and associates of the Corporation and its subsidiaries:
December 31,
1999 1998
------------ ------------
Balance, January 1 $ 4,320,419 $ 3,257,242
New loans during the period 1,055,186 2,766,412
Repayments during the period (1,113,088) (1,703,235)
------------ ------------
Ending balance $ 4,262,517 $ 4,320,419
============ ============
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
At December 31, 1999, 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, 1999, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year, are
as follows:
December 31, 2000 $ 100,692
December 31, 2001 80,692
December 31, 2002 76,692
December 31, 2003 76,692
December 31, 2004 76,692
Thereafter 316,510
Rental expense under operating leases approximated $91,000 in 1999; $103,000
in 1998; and $107,000 in 1997.
32
86
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 14 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
1999 1998 1997
---------- ---------- ----------
Directors fees $ 137,150 $ 121,800 $ 132,200
Stationery and supplies 138,959 161,921 135,751
Regulatory assessment and deposit insurance 79,985 75,381 80,152
Advertising 123,680 107,511 101,816
Postage and transportation 128,374 131,445 118,915
Other taxes 140,949 135,831 116,892
Service Expense 230,116 161,715 131,284
Other 558,195 567,203 490,558
---------- ---------- ----------
Total $1,537,408 $1,462,807 $1,307,568
========== ========== ==========
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, 1999 and 1998, were $892,000 and
$835,000, 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 2000, without approval
of the Comptroller of the Currency, of approximately $2.7 million, plus an
additional amount equal to the Bank's net profit for 2000 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, 1999,
that the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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.
32
87
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
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, 1999:
Total Capital $ 17,092 14.8% $ 9,226 8.0% $ 11,532 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 15,944 13.8% $ 4,613 4.0% $ 6,919 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 15,944 8.4% $ 5,692 3.0% $ 9,487 5.0%
(to Average Assets)
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, 1998:
Total Capital $ 16,031 15.0% $ 8,557 8.0% $ 10,696 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 14,908 13.9% $ 4,279 4.0% $ 6,418 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 14,908 8.7% $ 5,121 3.0% $ 8,534 5.0%
(to Average Assets)
NOTE 18 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of
factors. Where possible, fair values represent quoted market prices for
identical or comparable instruments. In other cases, fair values have been
estimated based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of
risk. Intangible values assigned to customer relationships are not reflected
in the reported fair values. Accordingly, the fair values may not represent
actual values of the financial instruments that could have been realized as
of year end or that will be realized in the future.
The following methods and assumptions were used by the Corporation in
estimating the fair value disclosures for financial instruments:
Cash and Short-term Investments: The carrying amount for cash and
- -------------------------------
short-term investments is a reasonable estimate of fair value. Short-term
investments consist of federal funds sold.
Investment Securities: Fair values for investment securities are based on
- ---------------------
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: Fair values for loans are estimated for portfolios of loans with
- -----
similar financial characteristics. Loans are segregated by type such as
commercial, real estate, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
non-performing categories. The fair value is calculated by discounting
scheduled cash flows through the estimated maturity using estimated discount
rates which reflect credit and interest rate risks inherent to the loan.
Deposits: The carrying amount for noninterest bearing and interest bearing
- --------
demand deposits and savings deposits is considered to be a reasonable
estimate of fair value. Fair values for time deposits are estimated using
discounted cash flow analysis. Discount rates reflect rates currently offered
for deposits of similar remaining maturities.
Short-Term Borrowings: The carrying amount for short-term borrowings, which
- ---------------------
consist of repurchase agreements, is considered to be a reasonable estimate
of fair value.
34
88
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 18 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-Balance-Sheet Instruments: The fair value of commitments is estimated
- -----------------------------
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. The amount of fees currently charged on
commitments are determined to be insignificant and, therefore, the carrying
value and fair value of off-balance-sheet instruments are not shown.
The estimates of fair values of financial instruments are summarized as
follows at December 31:
(Expressed in Thousands)
1999 1998
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Financial assets:
Cash and short-term investments $ 14,299 $ 14,299 $ 9,112 $ 9,112
Investment securities 60,095 59,884 54,735 54,810
Loans 109,341 108,592 102,432 105,871
Financial liabilities:
Deposits 161,558 160,746 147,785 149,260
Short-term borrowings 10,274 10,274 6,994 6,994
NOTE 19 - COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income in a full set of financial statements. The Corporation
adopted this statement on January 1, 1998, and has reclassified information
in the 1997 financial statements to reflect application of the provisions of
this statement. Unrealized gains and losses on securities available for sale
are the only components of other comprehensive income that apply to the
Corporation.
1999 1998 1997
------------ ---------- -----------
Before-tax amount $ (1,635,810) $ 57,995 $ 323,741
Tax effect 610,481 (21,441) (119,687)
------------ ---------- -----------
Net-of-tax amount $ (1,025,329) $ 36,554 $ 204,054
============ ========== ===========
35
89
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
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,
1999 1998
----------- -----------
ASSETS
Cash $ 496,694 $ 299,717
Investment in common stock - available
for sale (at market value) 402,212 226,281
Investment in subsidiary banks 15,447,520 15,026,356
Land and buildings, net - 120,090
Other assets 121,591 109,292
----------- -----------
Total assets $16,468,017 $15,781,736
========== ==========
LIABILITIES
Accrued expenses $ 36,764 $ 30,165
Deferred compensation 375,781 290,633
----------- -----------
Total liabilities 412,545 320,798
STOCKHOLDERS' EQUITY 16,055,472 15,460,938
----------- -----------
Total liabilities and stockholders' equity $16,468,017 $15,781,736
=========== ===========
STATEMENTS OF INCOME
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
INCOME
Dividends from subsidiary banks $ 817,700 $ 769,600 $ 733,600
Rental income 13,000 40,000 52,000
Gain on sale of land and building 301,862 - -
Gain on sale of investments 10,864 1,178 -
Other income 134,930 128,220 100,507
---------- ---------- ----------
Total income 1,278,356 938,998 886,107
---------- ---------- ----------
EXPENSES
Salary and employee benefits 86,109 100,346 111,668
Interest expense 2,580 2,400 2,190
Occupancy expense 3,800 11,399 11,399
Other expenses 132,940 129,469 138,614
---------- ---------- ----------
Total expenses 225,429 243,614 263,871
---------- ---------- ----------
Income before income taxes and
equity in undistributed income
of subsidiaries 1,052,927 695,384 622,236
INCOME TAX (PROVISION) BENEFIT (85,493) 30,399 45,757
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 1,482,947 1,307,242 1,262,575
---------- ---------- ----------
Net income $2,450,381 $2,033,025 $1,930,568
========== ========== ==========
36
90
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,450,381 $ 2,033,025 $ 1,930,568
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 3,800 15,447 15,447
Change in deferred tax benefit (32,565) (37,952) (42,842)
Undistributed earnings of affiliates (1,482,947) (1,307,242) (1,262,575)
Changes in operating assets
and liabilities:
Other assets (1,625) 2,000 4,266
Deferred compensation 85,149 100,346 109,607
Other liabilities 6,598 4,795 (7,447)
Gain on sale of securities (10,864) (1,178) -
Gain on sale of land and buildings (301,862) - -
----------- ----------- -----------
Net cash provided by
operating activities 716,05 809,241 747,024
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of securities 102,000 6,543 -
Proceeds from sale of land and building 418,152 56,791 -
Purchase of investment securities (208,722) (116,364) (78,619)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 311,430 (53,030) (78,619)
----------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid (830,518) (737,635) (654,905)
----------- ----------- -----------
Net cash used in
financing activities (830,518) (737,635) (654,905)
----------- ----------- -----------
INCREASE IN CASH
AND CASH EQUIVALENTS 196,977 18,576 13,500
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 299,717 281,141 267,641
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 496,694 $ 299,717 $ 281,141
=========== =========== ===========
Supplemental disclosures:
Cash paid for interest $ 2,580 $ 2,400 $ 2,190
Cash paid for income taxes 115,300 10,500 4,200
37
91
-----------------------------------------------------
First West Virginia Bancorp, Inc.
DIRECTORS
George F. Beneke. . . . .Chairman Emeritus, First West Virginia Bancorp, Inc.
Retired Attorney at Law
President, The Beneke Corporation
Sylvan J. Dlesk. . . . . . . . . . . . . . .. . . . . .President, Dlesk, Inc.
Ben R. Honecker. . . . . . . . . . . . . . . . . . . . . . . .Attorney at Law
Laura G. Inman. . . . . . . . .. .Chairman, 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. . . . . . . . . . . . . . . . . .Retired Insurance Executive
Thomas A. Noice. . . . . . . . . . . . . . . . . . . . Retired Bank Executive
William G. Petroplus. . . . . . . . . . . . . . . . . . . . . Attorney at Law
Ronald L. Solomon. . . .Vice Chairman, President and Chief Executive Officer,
First West Virginia Bancorp, Inc.
Vice Chairman, Chief Executive Officer, Progressive Bank, N.A.
Vice Chairman, Progressive Bank, N.A. Buckhannon
OFFICERS
George F. Beneke. . .. . . . . . . . . . . . . . . . . . . .Chairman Emeritus
Laura G. Inman. . . .. . . . . . . . . . . . . . . . . .Chairman of the Board
Ronald L. Solomon. . . .Vice Chairman, President and Chief Executive Officer
Charles K. Graham. . . . . . . . . . . . . . . . . Executive Vice President
Beverly A. Barker. . . . . . . . . . . . . .Senior Vice President, Treasurer
Francie P. Reppy. . . . . . . . . . . . . . . . . . . . . . . . . Controller
Connie R. Tenney. . . . . . . . . . . . . . . . . . . . . . . Vice President
David E. Yaeger. . . . . . . . . . . . . . . . . . . . . . . .Vice President
Stephanie A. LaFlam. . . . . . . . . . . . . . . . . . . . . . . . Secretary
-----------------------------------------------------
38
92
----------------------------------------------------
SUBSIDIARY
Progressive Bank N.A.
Wheeling, WV 26003
DIRECTORS OFFICERS
George F. Beneke James C. Inman, Jr. R. Clark Morton, Chairman of the
Dr. Clyde D. Campbell Laura G. Inman Board
Robert R. Cicogna H. Dennis Long Ronald L. Solomon, Vice Chairman
Gary P. DeVendra R. Clark Morton & Chief Executive Officer
Sylvan J. Dlesk Karl W. Neumann Charles K. Graham, President
Charles K. Graham William G. Petroplus Beverly A. Barker, Executive
C. Gary Hill Thomas L. Sable Vice President/Cashier
Ben R. Honecker Ronald L. Solomon Laura G. Inman, Senior Vice
President
David E. Yaeger, Senior Vice
President
Francie P. Reppy, Controller
Gary S. Martin, Vice President/
Marketing Coordinator
Brad D. Winwood, Vice President
Stephanie A. LaFlam, Executive
Secretary
DIRECTORS EMERITI Deborah A. Kloeppner, Assistant
Vice President/Office Manager
Bellaire
Susan E. Reinbeau, Assistant
Vice President/Office Manager
Woodsdale
Harry N. Duvall William T. Nickerson Michele L. Stanley, Assistant
T. Stewart Hopkins Edward P. Otte Vice President/Human Resource
Manager/Assistant Office
Manager Warwood
David E. Wharton, Assistant Vice
President/Office Manager Warwood
Harold O. Thomas, Senior
Business Development Officer
Bryan S. Ramsey, Business
Development/Loan Officer
Mitzi K. Mattern, Credit Card
Manager/Office Manager Wellsburg
Lisa M. Wagner, Office Manager
Moundsville
Robin L. Snyder, Operations
Supervisor Wellsburg
Laura K. Snedeker, Manager
Bookkeeping/Proof Operations
Debra M. Tomlin, Loan Officer
SUBSIDIARY
Progressive Bank, N.A. - Buckhannon
Buckhannon, WV 26201
DIRECTORS OFFICERS
William L. Fury Ronald L. Solomon Dale F. Riggs, Chairman
Charles K. Graham Douglas K. Stalnaker Ronald L. Solomon, Vice
J. Burton Hunter, III Douglas M. Stewart Chairman Chief Executive
David R. Rexroad Connie R. Tenney Officer/Cashier/Secretary
Rickie E. Rice J. David Thomas Dempsey Richardson, II,
Dale F. Riggs Executive Vice President
J. Burton Hunter, III,
Assistant Secretary
Debra A. Hamner, Office
Manager Weston
-----------------------------------------------------
39
93
Progressive Bank N.A. - Wheeling
(Photograph) (Photograph)
[CAPTION] [CAPTION]
Wellsburg Office Bellaire Office
Wellsburg, WV Bellaire, OH
(Photograph)
[CAPTION]
Woodsdale Office
Wheeling, WV
(Photograph) (Photograph)
[CAPTION] [CAPTION]
Warwood Office Moundsville Kroger Store Office
Wheeling, WV Moundsville, WV
Progressive Bank, N.A. - Buckhannon
(Photograph) (Photograph)
[CAPTION] [CAPTION]
Buckhannon Office Weston Office
Buckhannon, WV Weston, WV
40
94
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
11, 2000, 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, 1999, may
obtain a copy of the Corporation's 1999 Form 10-K Report (to be filed with the
Securities and Exchange Commission before March 31, 2000) by writing to the
Secretary, First West Virginia Bancorp, Inc., 875 National Road, Wheeling, WV
26003