EXHIBIT 13.1
Annual Report to Shareholders
INSERT INSIDE FRONT COVER OF ANNUAL REPORT
(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 1997 Annual Report of First West Virginia
Bancorp, Inc. Consolidated net income for 1997 was $1,930,568 or $1.60 per
share, a 17.4% increase over the $1,643,994 or $1.36 per share earned for
1996. The Holding Company ended the year 1997 with total assets of
$156,142,583, an increase of 8.0% over the $144,545,710 reported in 1996.
Total stockholders' equity at December 31, 1997 was $14,128,995, an increase
of 11.7% over the prior year. The book value per share was $11.69 at December
31, 1997 as compared to $10.46 a year earlier.
During 1997, the board of directors declared and paid cash dividends
of $.54 per share compared to $.47 per share during 1996, which represents an
increase of 14.9% over the prior year. Additionally, on September 9, 1997 the
Board of Directors declared a three-for-two stock split in the effect of a 50%
stock dividend payable to shareholders of record on October 1, 1997.
The merger and plan of reorganization between First West Virginia
Bancorp, Inc. and two of its subsidiary banks, Progressive Bank, N.A.,
Wheeling, West Virginia and Progressive Bank, N.A. - Bellaire, Bellaire, Ohio,
was completed during the third quarter of 1997. The former Progressive Bank,
N.A. - Bellaire now operates as a branch bank of Progressive Bank, N.A.,
Wheeling, West Virginia.
In our continued commitment to our sales, service and quality
initiative, First West Virginia Bancorp, Inc. strives to provide competitive
products and quality services to bank customers. During the second quarter of
1997, the Progressive Gold money market account was introduced in order to
meet the customer demand for an insured money market account and to enhance
our existing deposit products. The Progressive Gold money market account
provides an optimum return with $100,000 FDIC coverage.
The board of directors of First West Virginia Bancorp, Inc. elected
William G. Petroplus to the board. Mr. Petroplus is an attorney at law and a
senior partner with the firm of Petroplus & Gaudino located in Wheeling, West
Virginia. He has been a member of the board of directors of Progressive Bank,
N.A., since 1986. Mr. Petroplus was elected to fulfill the unexpired term
created by the resignation of Robert A. Heyl. Mr. Heyl, a former director of
Progressive Bank, N.A. - Bellaire, had served as a member of the board of
directors of First West Virginia Bancorp, Inc. since 1988. Mr. Heyl resigned
due to illness and his experience, support and dedication to the corporation
will be sadly missed.
First West Virginia Bancorp, Inc. has been built on a philosophy of
safety and soundness, service and commitment to our customers and strategic
growth. We will continue this approach in the years ahead as we embark upon
the new millennium.
As always, my gratitude goes to our loyal customers and
shareholders, as well as hard-working directors, officers and employees for
their ongoing support which led our organization to attain record earnings
once again.
Sincerely,
/s/ Ronald L. Solomon
Ronald L. Solomon
President and Chief Executive Officer
- -----------------------------------------------------------------------------------------------------
Table One
SELECTED FINANCIAL DATA
(In thousands, except per share data
- -----------------------------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Years ended
December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- --------- --------
SUMMARY OF OPERATIONS
Total interest income $ 11,507 $ 10,067 $ 8,937 $ 7,783 $ 8,054
Total interest expense 4,745 3,925 3,421 2,868 3,319
Net interest income 6,762 6,142 5,516 4,915 4,735
Provision for loan losses 131 71 50 77 116
Total other income 639 568 738 725 666
Total other expenses 4,377 4,182 4,007 3,641 3,528
Income before income taxes 2,893 2,457 2,198 1,922 1,757
Net income 1,931 1,644 1,470 1,288 1,193
PER SHARE DATA (1)
Net income $ 1.60 $ 1.36 $ 1.22 $ 1.07 .99
Cash dividends declared (2) .54 .47 .34 .37 .34
Book value per share 11.69 10.46 9.68 8.58 8.07
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 86,609 $ 74,469 $ 66,058 $ 56,991 $ 56,264
Investment securities 51,754 48,557 46,020 50,282 47,755
Deposits - Interest Bearing 120,589 112,768 100,488 95,980 94,852
Long-term debt - - - 44 754
Stockholders' equity 13,400 12,186 11,170 10,253 9,252
Total Assets 153,290 137,810 124,145 117,996 115,765
BALANCE SHEET
Investments $ 45,444 $ 50,440 $ 45,996 $ 45,551 $ 50,099
Loans 95,374 80,417 72,006 61,667 55,838
Other Assets 15,325 13,689 9,953 9,445 10,303
---------- --------- ---------- --------- ---------
Total Assets $ 156,143 $ 144,546 $ 127,955 $ 116,663 $116,240
========== ========= ========= ========= =========
Deposits $ 137,045 $ 125,271 $ 114,895 $ 105,730 $105,791
Repurchase Agreements 4,075 5,931 749 105 -
Other Liabilities 894 695 602 460 694
Shareholders' Equity 14,129 12,649 11,709 10,368 9,755
---------- --------- ---------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 156,143 $ 144,546 $ 127,955 $ 116,663 $116,240
=========- ========= ========= ========= =========
SELECTED RATIOS
Return on average assets 1.26% 1.19% 1.18% 1.09% 1.03%
Return on average equity 14.41% 13.49% 13.16% 12.56% 12.89%
Average equity to average assets 8.74% 8.84% 9.00% 8.69% 7.99%
Dividend payout ratio (1) (2) 33.75% 34.56% 27.87% 34.58% 34.34%
Loan to Deposit ratio 69.59% 64.19% 62.67% 58.32% 52.78%
(1) Adjusted for 3 for 2 stock split in the effect of a fifty (50) percent
common stock dividend, declared September 9, 1997, payable on October 27, 1997
to shareholders of record as of October 1, 1997; the 4 percent common stock
dividend to stockholders of record as of December 2, 1996, a 2 percent common
stock dividend to stockholders of record as of December 1, 1995 and the
two-for-one stock split effective April 15, 1994.
(2) Cash dividends and the related payout ratio are based on historical
results of the Holding Company and do not include cash dividends of acquired
subsidiaries prior to the dates of consummation.
- -----------------------------------------------------------------------------
2
First West Virginia Bancorp, Inc.
Management's Discussion and Analysis of the Financial Condition and
Results of Holding Company Operations
---------------------------------------------------------------
First West Virginia Bancorp, Inc., a West Virginia corporation
headquartered in Wheeling, West Virginia commenced operations in July, 1973
and has two wholly-owned subsidiaries: Progressive Bank, N.A., which operates
in Wheeling, Wellsburg, 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, 1997, 1996 and 1995. 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 $1,930,568 for the year ended
December 31, 1997 as compared to $1,643,994 for the year ended December 31,
1996. The 17.4% increase in earnings during 1997 over 1996 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 $1.60 in 1997 compared to $1.36 in 1996.
Operational earnings improved with net interest income increasing $620,713 or
10.1%, to $6,762,362 during 1997 as compared to the same period in 1996. The
increase results primarily from the growth in the loan portfolio.
The return on average assets (ROA), which measures the effectiveness of asset
utilization to produce net income, increased in 1997 to 1.26%, up from 1.19%
in 1996. The return on average equity (ROE), which measures the return on the
stockholders' investment, was 14.41% in 1997 and compares favorably over the
13.49% earned in 1996.
The Holding Company ended the year 1997 with total assets of $156,142,583 an
increase of 8.0% over the $144,545,710 reported for the year ended December
31, 1996. Loans net of reserves increased in 1997 by $14,899,512 to
$94,155,890, as compared to $79,256,378 reported at December 31, 1996. Total
deposits increased in 1997 by $11,773,744, from $125,271,069 at December 31,
1996 to $137,044,813 at December 31, 1997, primarily due to the increase in
Time deposits.
Non-performing assets were $839,000 at December 31, 1997, up 19.5%, from
$702,000 at December 31, 1996. The allowance for loan losses amounted to
$1,217,763 at December 31, 1997 or 1.3% of total loans, compared to $1,160,302
or 1.4% of total loans at December 31, 1996.
The Board of Directors declared and paid cash dividends of $.54 per share
during 1997 as compared to $.47 in 1996. On September 9, 1997, the Board of
Directors also declared a 50% Stock Dividend to its shareholders of record as
of October 1, 1997. Accordingly, the Holding Company issued 402,978 shares of
common stock on October 27, 1997.
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 affect net interest income. Tables Two
and Three analyze the changes in net interest income for the three years ended
December 31, 1997, 1996, and 1995.
Net interest income was $6,762,362 in 1997, an increase of $620,713 or 10.1%,
from 1996, following an increase in 1996 of $625,768 or 11.3% from 1995. The
increase in net interest income for 1997 and 1996 was primarily attributable
to the growth in the loan portfolio. Interest and fees on loans and lease
financing increased $1,085,701 or 15.9% from 1996 to 1997 and $772,538 or
12.7% from 1995 to 1996. The increased interest income on loans and lease
financing for both years resulted from increases in the average loan volume of
$12,140,000 in 1997 and $8,411,000 in 1996. Increases in installment,
commercial and residential real estate loans primarily contributed to the loan
growth during 1997. Growth in commercial real estate, installment and
commercial loans primarily contributed to the increase in 1996. The average
yield on loans decreased .04% from 9.19% in 1996 to 9.15% in 1997. There was
no change in the average yield on loans between 1996 and 1995.
3
- ------------------------------------------------------------------------------
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, 1997, 1996, and 1995. Average balance sheet information as of December
31, 1997, 1996, and 1995 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, 1997 December 31, 1996 December 31, 1995
-------------------------- -------------------------- --------------------------
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 $ 45,157 $ 2,861 6.34% $ 42,203 $ 2,501 5.93% $ 39,411 $ 2,206 5.60%
Obligations of states and
political subdivisions 5,470 264 4.83% 4,869 247 5.07% 4,666 248 5.32%
Other securities 1,127 69 6.12% 1,485 101 6.80% 1,943 122 6.28%
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total Investment securities: 51,754 3,194 6.17% 48,557 2,849 5.87% 46,020 2,576 5.60%
Interest bearing deposits 533 28 5.25% 1,556 81 5.21% 88 5 5.68%
Federal funds sold 6,561 357 5.44% 5,590 295 5.28% 4,835 287 5.94%
Loans, net of unearned income 86,609 7,928 9.15% 74,469 6,842 9.19% 66,058 6,069 9.19%
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total earning assets 145,457 11,507 7.91% 130,172 10,067 7.73% 117,001 8,937 7.64%
Cash and due from banks 4,104 4,000 3,747
Bank premises and equipment 3,178 3,313 2,928
Other assets 1,741 1,496 1,552
Allowance for possible loan losses (1,190) (1,171) (1,083)
-------- -------- --------
Total Assets $153,290 $137,810 $124,145
======== ======== ========
LIABILITIES
Certificates of deposit $ 55,149 $ 2,945 5.34% $ 45,579 $ 2,286 5.02% $ 36,080 $ 1,734 4.81%
Savings deposits 41,376 1,102 2.66% 39,594 997 2.52% 42,326 1,152 2.72%
Interest bearing demand deposits 24,064 509 2.12% 23,880 515 2.16% 22,082 518 2.35%
Federal funds purchased and
Repurchase agreements 5,118 189 3.69% 3,715 127 3.42% 462 17 3.68%
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total interest bearing liabilities 125,707 4,745 3.77% 112,768 3,925 3.48% 100,950 3,421 3.39%
Demand deposits 13,235 12,128 11,387
Other liabilities 948 728 638
-------- -------- --------
Total Liabilities 139,890 125,624 112,975
STOCKHOLDERS' EQUITY 13,400 12,186 11,170
-------- ------- --------
Total Liabilities
and Stockholders' Equity $153,290 $137,810 $124,145
======== ======== ========
Net yield on earning assets $ 6,762 4.65% $ 6,142 4.72% $ 5,516 4.71%
======== ====== ======== ====== ======== ======
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 1997, 1996, and 1995,
respectively. The effect of this adjustment is presented below (in
thousands).
Obligations of states and
political subdivisions:
Investment securities $ 5,470 $ 440 8.04% $ 4,869 $ 412 8.46% $ 4,666 $ 413 8.86%
Loans 86,609 8,018 9.26% 74,469 6,912 9.28% 66,058 6,124 9.27%
======== ======== ====== ======== ======== ====== ======== ======== ======
Total earning assets $145,457 $ 11,773 8.09% $130,172 $ 10,302 7.91% $117,001 $ 9,157 7.83%
======== ======== ====== ======== ======== ====== ======== ======== ======
Taxable equivalent net yield on
earning assets $ 7,028 4.83% $ 6,377 4.90% $ 5,736 4.90%
======== ====== ======== ====== ======== ======
- ------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------
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, 1997, 1996, and 1995 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.
1997 Compared to 1996 1996 Compared to 1995 1995 Compared to 1994
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 $ 175 $ 185 $ 360 $ 156 $ 139 $ 295 $ (250) $ 141 $ (109)
Obligations of states and
political subdivisions 30 (13) 17 11 (12) (1) 49 (8) 41
Other securities (24) (8) (32) (29) 8 (21) (24) (2) (26)
Interest bearing deposits (53) - (53) 86 (11) 75 (5) 2 (3)
Federal funds sold 51 11 62 45 (36) 9 42 86 128
Loans, net of unearned income 1,116 (30) 1,086 773 - 773 787 336 1,123
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest earned 1,295 145 1,440 1,042 88 1,130 599 555 1,154
INTEREST EXPENSE ON:
- -----------------------
Time deposits 480 179 659 456 96 552 251 368 619
Savings deposits 45 60 105 (75) (80) (155) (77) (13) (90)
Interest bearing demand deposits 4 (10) (6) 42 (45) (3) 16 (4) 12
Federal funds purchased and
Repurchase agreements 48 14 62 120 (10) 110 19 (4) 15
Long-term debt - - - - - - (3) - (3)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest paid 577 243 820 543 (39) 504 206 347 553
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest differential $ 718 $ (98) $ 620 $ 499 $ 127 $ 626 $ 393 $ 208 $ 601
======= ======= ======= ======= ======= ======= ======= ======= =======
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 1997, 1996, 1995, and 1994,
respectively.
Obligations of states and
political subdivisions:
Investment securities $ 51 $ (23) $ 28 $ 18 $ (19) $ (1) $ 81 $ (13) $ 68
Loans 1,127 (21) 1,106 780 8 788 794 344 1,138
======= ======= ======= ======= ======= ======= ======= ======= =======
Total interest earned $ 1,327 $ 144 $ 1,471 $ 1,056 $ 89 $ 1,145 $ 638 $ 558 $ 1,196
======= ======= ======= ======= ======= ======= ======= ======= =======
Net interest differential $ 750 $ (99) $ 651 $ 513 $ 128 $ 641 $ 432 $ 211 $ 643
======= ======= ======= ======= ======= ======= ======= ======= =======
- ------------------------------------------------------------------------------
5
Net Interest Income - Continued
The increase in the average yield earned combined with the increase in the
average volume of investment securities also contributed to the increase in
net interest income during 1997 and 1996. In 1997, interest income on
investment securities increased $343,159 or 12.0% from 1996, compared to the
increase in 1996 of 273,401 or 10.6% from 1995. The average volume of
investment securities increased $3,197,000 in 1997 and $2,537,000 in 1996
which contributed to increased interest income. The average yield on
investment securities increased .3%, from 5.87% in 1996 to 6.17% in 1997 and
increased .27% from 5.60% in 1995 to 5.87% in 1996.
Interest expense in 1997 increased $819,038 or 20.9% from 1996, compared to an
increase in 1996 of $504,581 or 14.8% from 1995. The increases in interest
expense for both 1997 and 1996 were primarily the result of deposit growth.
During 1997, the average volume of interest bearing deposits increased
$11,536,000 or 10.6% as compared to 1996, and increased $8,565,000 or 8.5% in
1996 as compared to 1995. Average volume increases of interest bearing
deposits during 1997 and 1996 were primarily the result of the growth in
certificates of deposit.
The average yield paid on interest bearing liabilities increased .29%, from
3.48% in 1996 to 3.77% in 1997, and follows an increase of .09%, from 3.39% in
1995 to 3.48% in 1996. The increase in the average yield on interest bearing
liabilities during 1997 was primarily the result of a shift in the interest
bearing deposit mix from demand and savings deposits to certificates of
deposit, which were higher yielding combined with an increase in average rates
paid on repurchase agreements.
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 net interest yields on average earning assets of 4.83% for 1997, as
compared to 4.90% and 4.90% earned during 1996 and 1995, respectively.
Noninterest Income
Service charges represent the major component of noninterest income. These
charges are earned from assessments made on checking and savings accounts.
Service charges increased $50,192 in 1997, up 13.7%, from 1996, as compared to
a decrease of 1.8% from 1995 to 1996. The increase in service charges in 1997
was primarily due to an increase in the number of charges assessed on deposit
accounts. The decrease in service charges in 1996 were primarily due to a
decrease in charges assessed on deposit accounts.
Sales of investment securities by the subsidiary banks are generally limited
to the needs established under the liquidity policies. 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. During 1996, securities losses were $711 and were also attributable to
sales of securities available for sale by a subsidiary bank. Securities gains
of $170,075 were realized in 1995. All securities gains in 1995 were
attributable to the holding company's sales of marketable equity securities
available for sale.
Other operating income is comprised of fees from safe deposit box rentals,
sales of checkbooks, sales of cashier's 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 1997, other
operating income was $224,584, an increase of $21,555 or 10.6% over 1996, and
follows an increase of $6,852, or 3.5%, over 1995. During 1997, increases in
income earned on checkbook sales, utility bill collections and safe deposit
box rent combined with an increase in lease income on property owned by the
Company primarily contributed to the increase in other operating income.
During 1996, increases in fees earned for utility bill collections and ATM
cards combined with an increase in lease income on property owned by the
corporation, offset by a premium for lease servicing arising from the early
sale of equipment in 1995 primarily contributed to the increase in other
operating income.
Non-Interest Expense
Salary and employee benefits is the largest component of non-interest expense.
For the year 1997, salary and employee benefits increased $161,549 or 7.6%
over the same period in 1996. During 1996, salary and employee benefits
increased $141,653 or 7.2% over 1995. The increase in salary and benefits in
1997 was primarily due to normal annual merit adjustments. The increase for
1996 was primarily due to the hiring of additional personnel by a subsidiary
bank for a branch office which opened in April, 1996 and normal annual merit
adjustments in salaries.
6
- ------------------------------------------------------------------------------
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, 1997 and December 31, 1996 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, 1997 December 31, 1996
---------------------------------------- ----------------------------------------
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 $ - -% $ 7,794 6.11% $ - -% $ 6,714 5.74%
After One But
Within Five Years - - 21,970 6.38 800 5.02 29,280 6.27
After Five But
Within Ten Years - - 2,263 6.94 - - 3,501 6.83
After Ten Years - - - - - - - -
-------- ------ -------- ------ -------- ------ -------- ------
- - 32,027 6.35 800 5.02 39,495 6.23
States & Political Subdivisions
Within One Year 436 6.31 - - 200 7.57 - -
After One But
Within Five Years 3,238 7.16 - - 2,723 7.53 - -
After Five But
Within Ten Years 941 7.55 516 7.46 1,678 7.89 507 7.58
After Ten Years 163 7.72 - - 163 7.72 - -
-------- ------ -------- ------ -------- ------ -------- ------
4,778 7.18 516 7.46 4,764 7.66 507 7.58
Corporate Debt Securities
Within One Year - - - - - - 404 7.60
After One But
Within Five Years - - 209 7.83 - - 210 7.78
-------- ------ -------- ------ -------- ------ -------- ------
- - 209 7.83 - - 614 7.66
Mortgage-Backed Securities - - 7,287 6.55 - - 3,741 6.95
Equity Securities - - 627 5.45 - - 519 6.15
-------- ------ -------- ------ -------- ------ -------- ------
Total $ 4,778 7.18% $ 40,666 6.39% $ 5,564 7.28% $ 44,876 6.32%
======== ====== ======== ====== ======== ====== ======== ======
- ------------------------------------------------------------------------------
7
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 $9,239 or .7% in 1997 over 1996 and decreased
$107,202 or 7.6% in 1996. Increased service expense, other taxes and
regulatory assessment and deposit insurance expenses, offset in part by
decreased stationery and supplies expense and other expenses primarily
contributed to the increase in other operating expenses during 1997.
The decrease in other operating expenses during 1996 was primarily due to the
reduction in the Federal Deposit Insurance Corporation (FDIC) insurance
assessment and the decrease in advertising expense, offset in part by
increased postage and transportation expense, other taxes and other expenses.
The regulatory assessment and deposit insurance expenses decreased $117,457 or
63.5%, in 1996 over 1995.
Income Taxes
Income tax expense for the period ended December 31, 1997 was $962,856, an
increase of $149,703 over 1996. The increase was primarily due to the
increase in pre-taxable income of $436,277. Components of the income tax
expense for December 31, 1997 were $824,174 for federal taxes and $138,682 for
West Virginia corporate net income taxes. Income tax expense for the period
ended December 31, 1996 increased by $85,926 over 1995. Increases in income
tax expense were primarily due to changes in pre-taxable income of $259,573 in
1996 over 1995.
For federal income tax purposes, tax-exempt income is based on qualified
state, county, and municipal bonds and loans. Tax-exempt income was $400,081
in 1997; $352,306 in 1996; and $329,042 in 1995. The state of West Virginia
recognizes tax-exempt income based on the average of certain investments and
loans held during the tax reporting period. Such items included as nontaxable
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 $1,269,000 in 1997; $1,025,000 in 1996; and $925,000 in
1995.
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, 1997,
1996 and 1995. Additional information regarding income taxes is contained in
Note 7 to the Consolidated financial statements.
Balance Sheet Analysis
Investments
Investment securities decreased $4,996,235 or 9.9% from $50,440,189 at
December 31, 1996, to $45,443,954 at December 31, 1997 and increased by
$4,444,707 or 9.7% from $45,995,482 at December 31, 1995 to $50,440,189 at
December 31, 1996. The decrease in investment securities was used to fund the
increased loan growth during 1997. The increase in investment securities at
December 31, 1996 was 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 is comprised 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 88.4% of total securities at December 31, 1997,
as compared to 89.5% at December 31, 1996. 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. 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. As of December 31, 1997, the Holding Company had
approximately 89% of the investment portfolio classified as available for
sale, while 11% was classified as held to maturity.
8
- ------------------------------------------------------------------------------
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,
1997 and December 31, 1996 (in thousands):
December 31, 1997
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 1,088 $ 7,769 $ 3,520
Real Estate - construction 333 - -
--------- --------- ---------
Total $ 1,421 $ 7,769 $ 3,520
========= ========= =========
December 31, 1996
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 957 $ 5,444 $ 3,937
Real Estate - construction 312 28 78
--------- --------- ---------
Total $ 1,269 $ 5,472 $ 4,015
========= ========= =========
The following table presents an analysis of fixed and variable rate loans as
of December 31, 1997 and December 31, 1996 along with the contractual
maturities of loans other than installment loans and residential mortgages (in
thousands):
December 31, 1997
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 1,122 $ 6,326 $ 1,237
Variable Rates 299 1,443 2,283
--------- --------- ---------
Total $ 1,421 $ 7,769 $ 3,520
========= ========= =========
December 31, 1996
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
---------------------------- ----------
Fixed Rates $ 509 $ 4,767 $ 1,498
Variable Rates 760 705 2,517
--------- --------- ---------
Total $ 1,269 $ 5,472 $ 4,015
========= ========= =========
- ------------------------------------------------------------------------------
9
Investments - Continued
As the investment portfolio consists primarily of fixed rate debt securities,
changes in the market rates of interest will effect the carrying value of
securities available for sale, adjusted upward or downward under the
requirements of FAS 115. Market rates of interest were improved at December
31, 1997, therefore the carrying value of securities available for sale was
increased by $195,928. The corporation had reduced the carrying value of
securities available for sale by $125,968 at December 31, 1996. The market
value of securities classified as held to maturity was above book value by
$59,428 and $23,164 at December 31, 1997 and December 31, 1996, respectively.
Loans
Loans were $95,373,653 at December 31, 1997, an increase of $14,956,973 or
18.6% from 1996, and follows an increase in 1996 of $8,410,404 or 11.7% from
1995. The loan growth during 1997 can be attributed primarily to increases in
installment loans, commercial loans and residential real estate loans, which
increased approximately $5,108,000, $4,819,000 and $3,716,000, respectively.
Increases in third party paper with various automobile dealers contributed to
the increase in installment loans in 1997. Commercial loan increases during
1997 were primarily as a result of expansion of area businesses due to the
extension of a subsidiary bank's market area. Residential real estate loans
increased in 1997 primarily as a result of new purchases and refinancing due
to offering competitive mortgage rates and local servicing.
Real estate residential loans which include real estate construction, real
estate farmland, and real estate residential loans comprised thirty-five
percent (35%) of the loan portfolio. Commercial loans which include real
estate secured by non-farm, non-residential and commercial and industrial
loans comprised thirty-eight percent (38%) of the loan portfolio. Installment
loans comprised twenty-three percent (23%) of the loan portfolio. Other loans
which include nonrated industrial development obligations, direct financing
leases and other loans comprised four percent (4%) of the loan portfolio. The
changes in the composition of the loan portfolio from 1996 to 1997 were a 1%
increase in installment loans, a 1% increase in other loans, a 1% decrease in
commercial loans and a 1% decrease in residential real estate loans. From
1995 to 1996, the changes in the composition of the loan portfolio were a 3%
increase in commercial loans, a 2% increase in installment loans, a 1%
decrease in other loans and a 4% decrease in residential real estate loans.
Non-performing assets included 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 non-performing assets is presented in
Table Six.
Total non-performing loans were $839,000 at December 31, 1997 and $702,000 at
December 31, 1996. Total non-performing loans increased $137,000 in 1997, as
compared to the increase of $194,000 in 1996. Loans classified as non-accrual
were $540,000 or .6% of total loans as of December 31, 1997, as compared to
$353,000 or .4% of total loans at December 31, 1996. There were no loans
classified as renegotiated at December 31, 1997 and 1996. The decrease in
renegotiated loans from 1994 to 1995 was primarily due to the reclassification
of one commercial real estate loan to performing loan status. The decrease in
renegotiated loans from 1993 to 1994 was primarily due to the reclassification
of two commercial real estate loans totaling $754,000 to performing loan
status. Loans past due 90 days or more decreased $81,000 during 1997, after
increasing $207,000 during 1996. Loans past due 90 days or more have remained
fairly consistent over the past five years. Other real estate owned increased
$31,000 in 1997 over 1996. Since 1993, other real estate owned has been
steadily declining due to the sale of the properties by the subsidiary banks.
Management continues to monitor the non-performing 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 1.3% and 1.4% of loans
outstanding as of December 31, 1997 and 1996, respectively. Net loan charge-
offs were $73,039 during 1997 as compared to $58,990 in 1996. The net
charge-offs during 1997 were primarily consumer loans. In 1996, net loan
charge-offs were primarily residential real estate and consumer loans.
The increase in personal bankruptcies has contributed to the increase in net
charge-offs on consumer type loans. Net loan charge-offs amounted to
$(152,467) in 1995. During 1995, the net loan charge-offs were primarily
due to a recovery received on one commercial loan in bankruptcy.
For the year ended December 31, 1997, the provision for possible loan losses
was $130,500 compared to $70,600, and $49,600 at December 31, 1996 and 1995,
respectively. The increased loan growth combined with the increase in net
charge-offs and in non-performing assets in 1997 has prompted the increase in
the provision for loan losses.
10
- ------------------------------------------------------------------------------
Table Six
Risk Elements
Loans which are in the process of collection, but are contractually past due
90 days or more as to interest or principal, renegotiated, non-accrual loans
and other real estate are as follows ( in thousands):
December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
Past Due 90 Days or More:
Real Estate - residential $ 45 $ 250 $ 33 $ 32 $ 197
Commercial 70 2 - 2 1
Installment 104 48 60 17 24
-------- -------- -------- -------- --------
$ 219 $ 300 $ 93 $ 51 $ 222
-------- -------- -------- -------- --------
Renegotiated:
Real Estate - residential $ - $ - $ - $ - $ -
Commercial - - - 232 1,026
Installment - - - - -
-------- -------- -------- -------- --------
$ - $ - $ - $ 232 $ 1,026
-------- -------- -------- -------- --------
Non-accrual:
Real Estate - residential $ 139 $ 26 $ 56 $ 18 $ 62
Commercial 353 299 256 218 260
Installment 48 28 39 25 16
-------- -------- -------- -------- --------
$ 540 $ 353 $ 351 $ 261 $ 338
-------- -------- -------- -------- --------
Other Real Estate $ 80 $ 49 $ 64 $ 64 $ 283
-------- -------- -------- -------- --------
Total non-performing assets $ 839 $ 702 $ 508 $ 608 $ 1,869
======== ======== ======== ======== ========
Total non-performing assets
to total loans and
other real estate 0.88% 0.87% 0.70% 0.98% 3.33%
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 $34,600
and $29,000 for the periods ended December 31, 1997 and 1996, respectively.
As of December 31, 1997, there are no loans known to management other than
those previously disclosed about which management has any information about
possible credit problems of borrowers which causes management to have serious
doubts as to the borrower's ability to comply with present loan repayment
terms.
- ------------------------------------------------------------------------------
11
- ------------------------------------------------------------------------------
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,
---------------------------------------------------------
1997 1996 1995 1994 1993
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,160 $ 1,149 $ 947 $ 896 $ 750
Loans Charged Off:
Real Estate - residential 18 35 1 - 11
Commercial - - 11 2 44
Installment 67 49 44 44 80
--------- --------- --------- --------- ---------
85 84 56 46 135
Recoveries:
Real Estate - residential - - - - 1
Commercial 3 1 194 3 2
Installment 9 24 15 17 6
--------- --------- --------- --------- ---------
12 25 209 20 9
Net Charge-offs 73 59 (153) 26 126
Purchased Reserves -- -- - - 156
Additions Charged to Operations 131 70 49 77 116
--------- --------- --------- --------- ---------
Balance at end of period: $ 1,218 $ 1,160 $ 1,149 $ 947 $ 896
========= ========= ========= ========= =========
Average Loans Outstanding $ 86,609 $ 74,469 $ 66,058 $ 56,991 $ 56,264
========= ========= ========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period 0.08% 0.08% (0.23)% 0.05% 0.22%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.28% 1.44% 1.60% 1.54% 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.
- ------------------------------------------------------------------------------
12
- ------------------------------------------------------------------------------
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, 1997 ( 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,
--------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- ---------------- -------------- ----------------
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 $ 202 34.6% $ 192 36.5% $ 215 39.9% $ 216 43.1% $ 216 43.1%
Commercial 622 38.0 619 39.1 618 36.5 420 34.7 382 35.9
Installment 343 23.6 298 21.6 265 20.0 260 19.3 248 17.6
Others 20 3.8 20 2.8 20 3.6 20 2.9 20 3.4
Unallocated 31 - 31 - 31 - 31 - 30 -
------ ----- ------ ----- ------ ----- ------ ----- ------ ------
Total $1,218 100.0% $1,160 100.0% $1,149 100.0% $ 947 100.0% $ 896 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ======
- ------------------------------------------------------------------------------
13
Allowance for Loan Losses - Continued
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 non-performing assets, local economic conditions and
management experience as presented in Table Seven. 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 1998 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 loan quality 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 amount of 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 $137,044,813 at December 31,
1997 as compared to $125,271,069 at December 31, 1996, an increase of 9.4%,
and follows an increase of 9.0% between 1996 and 1995. The increase in total
deposits during 1997 and 1996 was primarily in time deposits. Time deposits
grew by $6,824,615 or 13.3% in 1997, and follows an increase of $12,684,113 or
33.0% in 1996. Time deposits of $100,000 or more increased approximately
$1,472,000 at December 31, 1997 as compared to December 31, 1996. The
increase in time deposits was primarily the result of special promotions
offered by the subsidiary banks throughout 1996 and 1997.
Repurchase Agreements
Repurchase agreements represent short-term borrowings, usually overnight to 30
days. Repurchase agreements were $4,074,996 at December 31, 1997, a decrease
of $1,855,695 in 1997 as compared to 1996. The decrease in repurchase
agreements in 1997 as compared to 1996 was primarily attributable to a decline
in the number of commercial customers that used repurchase agreements.
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 10.0% in 1997 entirely from current
earnings after quarterly dividends, and an increase of 1.7% resulting from the
effect of the change in the net unrealized gain (loss) on securities available
for sale. The increase in stockholders' equity in 1997 follows an increase of
9.1% in 1996 entirely from current earnings after quarterly dividends, and a
decrease of 1.1% resulting from the effect of the change in the net unrealized
gain (loss) on securities available for sale. Stockholders' equity amounted
to 9.0% of total assets at the end of 1997 as compared to 8.8% at December 31,
1996.
The Holding Company's primary source of funds for payment of dividends to
shareholders is from the dividends from its subsidiary banks. Earnings from
subsidiary bank operations are expected to remain adequate to fund payment of
stockholders' dividends and internal growth. In management's opinion, the
subsidiary banks have the capability to upstream sufficient dividends to meet
the cash requirements of the Holding Company. Additional information
concerning the payment of dividends by the Holding Company is discussed in
Note 16 of the Consolidated Financial Statements.
On September 9, 1997, the Holding Company declared a 50% common stock dividend
to stockholders of record on October 1, 1997. Accordingly, 402,978 shares of
common stock were issued on October 27, 1997. A 4 percent common stock
dividend was declared by the Holding Company on November 12, 1996 to
stockholders of record on December 2, 1996. As a result, 30,839 shares of
common stock were issued on December 16, 1996.
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 18 of the Consolidated Financial Statements.
14
Interest Rate Risk
Changes in interest rates can affect the level of income of a financial
institution depending on the repricing characteristics of its assets and
liabilities. This is termed interest rate risk. If a financial institution is
asset sensitive, more of its assets will reprice in a given time frame than
liabilities. This is a favorable position in a rising rate environment and
would enhance income. If an institution is liability sensitive, more of its
liabilities will reprice in a given time frame than assets. This is a
favorable position in a falling rate environment. Financial institutions
allocate significant time and resources to managing interest rate risk because
of the impact that changes in interest rates can have to earnings.
The initial step in the process of maintaining a corporation's interest rate
sensitivity involves the preparation of a basic "gap" analysis of earning
assets and interest bearing liabilities as reflected in the following table.
The analysis measures the difference or the "gap" between the amount of assets
and liabilities repricing within a given time period.
This information is used to manage a corporation's asset and liability
positions. Management uses this information as a factor in decisions made
about maturities of investment of cash flows, classification of investment
securities purchases as available-for-sale or held-to-maturity, emphasis of
variable rate or fixed rate loans and short or longer term deposit products in
marketing campaigns, and deposit account pricing to alter asset and liability
repricing characteristics. The overall objective is to minimize the impact to
the margin of any significant change in interest rates.
The information presented in the following Interest Rate Risk table contains
assumptions and estimates used by management in determining repricing
characteristics and maturity distributions. As noted in the following table,
the cumulative gap at one year is approximately $(6,177,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
December 31, 1997. 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, 1997
(less (greater Non-
than) 3 3 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
------- ------- ------ ------- ------- -------
ASSETS:
Fed Funds Sold $ 6,932 $ $ $ $ $ 6,932
Investments 2,918 9,911 13,824 18,791 45,444
Loans 11,779 19,889 27,618 35,508 580 95,374
Other Assets 97 9,514 9,611
Allowance for Loan
and Lease Losses (1,218) (1,218)
-------- -------- ------- ------- ------- --------
TOTAL ASSETS: $ 21,726 $ 29,800 $41,442 $54,299 $ 8,876 $156,143
======== ======== ======= ======= ======= ========
NOW and Savings $ 3,651 $ 10,891 $10,213 $29,746 $ $ 54,501
MMDA 10,445 10,445
CD's < 100,000 5,433 16,116 12,474 11,986 46,009
CD's > 100,000 4,296 2,796 4,170 685 11,947
Demand Deposits 14,143 14,143
Other Liabilities 894 894
Repurchase Agreements 4,075 4,075
Stockholders' Equity 14,129 14,129
-------- -------- ------- ------- ------- --------
TOTAL LIABILITIES
AND CAPITAL: $27,900 $29,803 $26,857 $42,417 $29,166 $156,143
======= ======= ======= ======== ======= ========
GAP (6,174) (3) 14,585 11,882 (20,290)
GAP/ Total Assets (3.95%) (0.00%) 9.34% 7.61% (12.99%)
Cumulative GAP (6,174) (6,177) 8,408 20,290 0
Cumulative GAP/Total Assets (3.95%) (3.96%) 5.38% 12.99% 0.00%
The above analysis contains repricing and maturity assumptions and estimates
used by management.
- ------------------------------------------------------------------------------
15
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
$40,665,808 classified as available for sale at December 31, 1997. 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, 1997, Progressive Bank, N.A. and Progressive Bank, N.A.-
Buckhannon, had an available line of approximately $1,835,000 and $551,000,
respectively, without purchasing any additional capital stock from the FHLB.
As of December 31, 1997 and 1996, there were no borrowings outstanding
pursuant to these agreements.
At December 31, 1997 and December 31, 1996, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $7,321,000
and $8,317,000, respectively. As of December 31, 1997, management placed a
high probability for required funding within one year of approximately
$5,092,000. Approximately $1,991,000 is principally unused home equity and
credit card lines on which management places a low probability for required
funding.
Other Matters
First West Virginia Bancorp, Inc. and its subsidiary banks are heavily
dependent on technology to process information. Therefore, the banks need to
ensure that information systems and applications are century compliant,
supporting the Year 2000. The Board of Directors and management of First West
Virginia Bancorp, Inc. and its subsidiary banks have established a Year 2000
Plan, ("the Plan"). Accordingly, a Year 2000 Project committee has been
formed to develop an overall strategy and to monitor the Plan's reporting
requirements. The Plan involves five phases which include: Awareness,
Assessment, Renovation, Validation, and Implementation. The first two phases
of the Plan, which include Awareness and Assessment, have been completed in
accordance with the timetables established in the Plan. The expected
timetables for completion of the remaining phases are as follows: Renovation
phase, third quarter of 1997 through fourth quarter of 1998; Validation phase,
third quarter of 1998 through first quarter of 1999; Implementation phase,
first quarter of 1999. The estimated costs of the Year 2000 issue are not
expected to have a material impact to the results of operations, liquidity and
capital resources of the Company.
16
- ------------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- ------------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
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) .39 .39 .42 .40
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $ 2,372,377 $ 2,473,455 $ 2,556,220 $ 2,665,006
Total interest expense 916,012 958,753 993,702 1,056,942
Net interest income 1,456,365 1,514,702 1,562,518 1,608,064
Provision for loan losses 14,400 14,400 16,800 25,000
Investment Securities Gain (Loss) (1,050) 339 - -
Total other income 136,416 143,670 148,902 139,487
Total other expenses 1,016,692 1,040,824 1,038,297 1,085,853
Income before income taxes 560,639 603,487 656,323 636,698
Net income 374,361 405,277 435,046 429,310
Net income per share (1) .31 .34 .36 .35
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Total interest income $ 2,064,169 $ 2,194,348 $ 2,312,087 $ 2,366,105
Total interest expense 760,643 848,967 902,119 909,099
Net interest income 1,303,526 1,345,381 1,409,968 1,457,006
Provision for loan losses 29,400 13,400 3,800 3,000
Investment Securities Gain -- 65,475 - 104,600
Total other income 164,515 126,750 155,558 121,407
Total other expenses 1,003,933 987,471 920,319 1,095,289
Income before income taxes 434,708 536,735 641,407 584,724
Net income 294,323 358,502 418,489 399,033
Net income per share (1) .24 .30 .35 .33
(1) Adjusted for the 3 for 2 stock split in the effect of a 50% stock
dividend to stockholders of record as of October 1, 1997, payable
October 27, 1997, a 4 percent common stock dividend to stockholders
of record as of December 2, 1996, and a 2 percent common stock
dividend to stockholders of record as of December 1, 1995.
- -------------------------------------------------------------------------------
17
- -----------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Corporation's consolidated financial statements and the related
information appearing in this Annual Report were prepared by management in
accordance with generally accepted accounting principles and where appropriate
reflect management's best estimates and judgment. The financial statements
and the information related to those statements contained in the Annual Report
are the responsibility of management.
The accounting systems of the Corporation include internal
accounting controls which safeguard the Corporation's assets from material
loss or misuse and ensure that transactions are properly authorized and
recorded in its financial records, and designed to provide reasonable
assurance as to the integrity and reliability of the financial records. There
are inherent limitations in all systems of internal control based on the
recognition that the cost of such systems should not exceed the benefits to be
derived. The accounting system and related controls are reviewed by a
program of internal audits performed by the internal auditor and independent
auditors.
Our independent auditors are responsible for auditing the
Corporation's financial statements in accordance with generally accepted
auditing standards and to provide an objective, independent review of the
fairness of reported operating results and financial position of the
Corporation.
The Corporation's internal auditor and independent auditors have
direct access to the Audit committee of the Board of Directors. This
committee, which is composed of five outside directors, meets periodically
with the internal auditor, the independent auditors, and management to ensure
the financial accounting and audit process is properly conducted.
- -----------------------------------------------------------------------------
18
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, 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, 1997, in conformity with
generally accepted accounting principles.
/s/S. R. Snodgrass, A.C.
Wheeling, West Virginia
January 21, 1998
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile:
304-233-3062
19
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
------------- -------------
ASSETS
Cash and due from banks $ 4,718,516 $ 4,589,502
Due from banks - interest bearing 96,967 81,558
------------- -------------
Total cash and cash equivalents 4,815,483 4,671,060
Federal funds sold 6,932,000 5,461,000
Investment Securities:
Available for Sale (at market value) 40,665,808 44,875,887
Held to Maturity (market value of $4,837,574
and $5,587,466, respectively) 4,778,146 5,564,302
Loans, net of unearned income 95,373,653 80,416,680
Less allowance for loan losses (1,217,763) (1,160,302)
------------- -------------
Net loans 94,155,890 79,256,378
Premises and equipment, net 3,085,087 3,249,425
Accrued income receivable 1,075,701 948,026
Other assets 630,420 511,536
Intangible assets 4,048 8,096
------------- -------------
Total assets $ 156,142,583 $ 144,545,710
============= =============
LIABILITIES
Noninterest bearing deposits:
Demand $ 14,142,125 $ 12,359,041
Interest bearing deposits
Demand 22,908,421 23,560,313
Savings 42,037,038 38,219,101
Time 57,957,229 51,132,614
------------- -------------
Total deposits 137,044,813 125,271,069
------------- -------------
Repurchase agreements 4,074,996 5,930,691
Accrued interest on deposits 432,870 385,289
Other liabilities 460,909 309,383
------------- -------------
Total liabilities 142,013,588 131,896,432
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - 2,000,000 shares authorized at $5 par value:
1,209,085 shares issued at December 31, 1997 and
806,107 shares issued at December 31, 1996 6,045,425 4,030,535
Surplus 3,764,000 3,764,000
Retained earnings 4,196,076 4,935,303
Net unrealized gain (loss) on securities available for sale 123,494 (80,560)
------------- -------------
Total stockholders' equity 14,128,995 12,649,278
------------- -------------
Total liabilities and stockholders' equity $ 156,142,583 $ 144,545,710
============= =============
The accompanying notes are an integral part of the financial statements.
20
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
----------- ---------- ----------
INTEREST INCOME
Interest and fees on loans and lease financing:
Taxable $ 7,791,705 $ 6,736,781 $ 5,988,515
Tax-exempt 135,969 105,192 80,920
Investment securities:
Taxable 2,905,180 2,581,467 2,307,702
Tax-exempt 264,112 247,114 248,122
Dividends 22,862 20,414 19,770
Other interest income 29,843 80,742 5,171
Interest on federal funds sold 357,138 295,348 286,509
----------- ---------- ----------
Total interest income 11,506,809 10,067,058 8,936,709
----------- ---------- ----------
INTEREST EXPENSE
Deposits 4,555,542 3,798,076 3,404,322
Other borrowings 188,905 127,333 16,506
----------- ---------- ----------
Total interest expense 4,744,447 3,925,409 3,420,828
----------- ---------- ----------
Net interest income 6,762,362 6,141,649 5,515,881
PROVISION FOR POSSIBLE LOAN LOSSES 130,500 70,600 49,600
----------- ---------- ----------
Net interest income after provision
for possible loan losses 6,631,862 6,071,049 5,466,281
----------- ---------- ----------
NONINTEREST INCOME
Service charges and other fees 415,638 365,446 372,053
Securities gains (losses) (1,291) (711) 170,075
Other operating income 224,584 203,029 196,177
----------- ---------- ----------
Total noninterest income 638,931 567,764 738,305
NONINTEREST EXPENSE
Salary and employee benefits 2,280,673 2,119,124 1,977,471
Net occupancy expense of premises 789,128 764,213 624,010
Other operating expenses 1,307,568 1,298,329 1,405,531
----------- ---------- ----------
Total noninterest expense 4,377,369 4,181,666 4,007,012
----------- ---------- ----------
Income before income taxes 2,893,424 2,457,147 2,197,574
INCOME TAXES 962,856 813,153 727,227
----------- ---------- ----------
Net income $ 1,930,568 $ 1,643,994 $ 1,470,347
=========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,209,085 1,209,085 1,209,085
=========== ========== ==========
EARNINGS PER COMMON SHARE $1.60 $1.36 $1.22
=========== ========== ==========
The accompanying notes are an integral part of the financial statements.
21
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net unrealized
Gain (Loss) on
Common Stock Securities
-------------------------- Retained Available
Shares Amount Surplus Earnings for Sale Total
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1994 $ 760,232 $ 3,801,160 $ 2,918,246 $ 3,888,127 $ (239,690) $ 10,367,843
NET INCOME - - - 1,470,347 - 1,470,347
CASH DIVIDEND
($.34 PER SHARE) - - - (410,525) - (410,525)
CASH PAID IN LIEU OF FRACTIONAL
SHARES ON STOCK DIVIDEND - - - (3,626) - (3,626)
2% COMMON STOCK DIVIDEND AT
FAIR MARKET VALUE 15,036 75,180 248,094 (323,274) - -
CHANGE IN FAIR VALUE OF
SECURITIES AVAILABLE FOR SALE - - - - 285,168 285,168
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 775,268 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $ 11,709,207
NET INCOME - - - 1,643,994 - 1,643,994
CASH DIVIDEND
($.47 PER SHARE) - - - (573,698) - (573,698)
CASH PAID IN LIEU OF FRACTIONAL
SHARES ON STOCK DIVIDEND - - - (4,187) - (4,187)
4% COMMON STOCK DIVIDEND AT
FAIR MARKET VALUE 30,839 154,195 597,660 (751,855) - -
CHANGE IN FAIR VALUE OF
SECURITIES AVAILABLE FOR SALE - - - - (126,038) (126,038)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 $ 806,107 $ 4,030,535 $ 3,764,000 $ 4,935,303 $ (80,560) $ 12,649,278
NET INCOME - - - 1,930,568 - 1,930,568
CASH DIVIDEND
($.54 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) - -
CHANGE IN FAIR VALUE OF
SECURITIES AVAILABLE FOR SALE - - - - 204,054 204,054
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 $ 1,209,085 $ 6,045,425 $ 3,764,000 $ 4,196,076 $ 123,494 $ 14,128,995
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements
22
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996 1995
------------- ------------- -------------
OPERATING ACTIVITIES
Net Income $ 1,930,568 $ 1,643,994 $ 1,470,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 130,500 70,600 49,600
Depreciation and amortization 370,743 382,789 299,639
Loss on disposal of equipment -- 776 12,976
Amortization of investment securities, net (47,749) (10,963) 31,340
Investment security losses (gains) 1,291 711 (170,075)
Increase in interest receivable (127,675) (24,703) (107,584)
Increase in interest payable 47,581 70,682 82,464
Other, net (85,201) 78,879 79,736
------------- ------------- -------------
Net cash provided by operating activities 2,220,058 2,212,765 1,748,443
------------- ------------- -------------
INVESTING ACTIVITIES
Net increase in federal funds sold (1,471,000) (3,183,000) (259,000)
Net increase in loans, net of charge offs (15,042,430) (8,494,283) (10,395,535)
Proceeds from sales of securities available for sale 1,487,344 1,250,868 183,275
Proceeds from maturities of securities available for sale 23,350,000 21,615,000 10,482,400
Proceeds from maturities of securities held to maturity 2,010,000 235,000 5,210,000
Principal collected on mortgage-backed securities 944,930 415,482 393,403
Purchases of securities available for sale (21,194,040) (27,341,216) (15,192,854)
Purchases of securities held to maturity (1,233,644) (806,587) (934,242)
Recoveries on loans previously charged-off 12,418 24,889 208,874
Purchases of premises and equipment (202,358) (499,219) (498,827)
------------- ------------- -------------
Net cash used in investing activities (11,338,780) (16,783,066) (10,802,506)
------------- ------------- -------------
FINANCING ACTIVITIES
Net increase in deposits 11,773,745 10,375,915 9,164,918
Dividends paid (654,905) (577,885) (414,151)
Increase (decrease) in short-term borrowings (1,855,695) 5,181,467 644,030
------------- ------------- -------------
Net cash provided by financing activities 9,263,145 14,979,497 9,394,797
------------- ------------- -------------
INCREASE IN CASH AND
CASH EQUIVALENTS 144,423 409,196 340,734
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 4,671,060 4,261,864 3,921,130
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,815,483 $ 4,671,060 $ 4,261,864
============= ============= =============
The accompanying notes are an integral part of the financial statements
23
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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. In addition, marketable equity
securities are carried at fair value with net unrealized gains and losses
included in stockholders' equity, net of tax. 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 certificates 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.
24
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest and Fees on Loans (Continued)
- --------------------------
As of January 1, 1995, the Corporation adopted 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 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 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.
25
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 November 14, 1995, the Corporation declared a 2% common stock dividend to
stockholders of record on December 1, 1995. On November 12, 1996, the
Corporation declared a 4% stock dividend to stockholders of record on December
2, 1996. On September 9, 1997, the Corporation declared a 50% stock dividend
to stockholders of record on October 1, 1997. All common share data include
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 1997, $31,300 for 1996, and $35,500 for 1995.
Reclassifications
- ------------------
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
26
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES
The estimated market values of investment securities are as follows at
December 31, 1997 and 1996:
December 31, 1997
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- --------- --------- ---------
Securities held to maturity: (Expressed in Thousands)
----------------------------
Obligations of states and political subdivisions $ 4,778 $ 61 $ (1) $ 4,838
--------- --------- --------- ---------
Total held to maturity 4,778 61 (1) 4,838
--------- --------- --------- ---------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 31,920 121 (14) 32,027
Obligations of states and political subdivisions 503 13 - 516
Corporate debt securities 204 5 - 209
Mortgage-backed securities 7,231 72 (16) 7,287
Equity securities 612 17 (2) 627
--------- --------- --------- ---------
Total available for sale 40,470 228 (32) 40,666
--------- --------- --------- ---------
Total $ 45,248 $ 289 $ (33) $ 45,504
========= ========= ========= =========
December 31, 1996
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- --------- --------- ---------
Securities held to maturity: (Expressed in Thousands)
----------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 800 $ - $ (11) $ 789
Obligations of states and political subdivisions 4,764 43 (9) 4,798
--------- --------- --------- ---------
Total held to maturity 5,564 43 (20) 5,587
--------- --------- --------- ---------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 39,657 71 (233) 39,495
Obligations of states and political subdivisions 503 4 - 507
Corporate debt securities 608 6 - 614
Mortgage-backed securities 3,716 40 (15) 3,741
Equity securities 518 1 - 519
--------- --------- --------- ---------
Total available for sale 45,002 122 (248) 44,876
--------- --------- --------- ---------
Total $ 50,566 $ 165 $ (268) $ 50,463
========= ========= ========= =========
27
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1997, 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 $ 436 $ 438 $ 7,790 $ 7,794
Due after one year through five years 3,238 3,266 22,089 22,179
Due after five years through ten years 941 964 2,748 2,779
Due after ten years 163 170 - -
---------- ---------- ---------- ----------
4,778 4,838 32,627 32,752
Mortgage-backed securities - - 7,231 7,287
Equity securities - - 612 627
---------- ---------- ---------- ----------
Total $ 4,778 $ 4,838 $ 40,470 $ 40,666
========== ========== ========== ==========
Proceeds from sales of securities available for sale during the years ended
December 31, 1997, 1996, and 1995, were $1,487,344, $1,250,868, and
$183,275, respectively. Gross gains of $2,772 and gross losses of $4,063 in
1997, gross gains of $425 and gross losses of $1,136 in 1996, and gross gains
of $170,075 in 1995, were realized on those sales. Assets carried at
$18,079,000 and $14,158,000 at December 31, 1997 and 1996, respectively, were
pledged to secure United States Government and other public funds and for
other purposes as required or permitted by law.
In accordance with guidance issued by the Financial Accounting Standards
Board, the Corporation reassessed the appropriateness of the classifications
of all securities in December, 1995. As a result, securities with an
amortized cost of $18,411,939 and unrealized loss of $112,961 were transferred
from the held to maturity category to the available for sale category at that
time.
28
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 3 - LOANS AND LEASES
Loans outstanding at December 31, 1997 and 1996, are as follows:
(Expressed in Thousands)
1997 1996
---------- ----------
Real estate-construction $ 334 $ 418
Real estate-farmland 122 12
Real estate-residential 32,610 28,920
Real estate-secured by non-farm, non-residential 23,925 21,145
Commercial and industrial loans 12,377 10,338
Installment and other loans to individuals 22,487 17,379
Non-rated industrial development obligations 3,517 1,593
Direct financing leases 70 334
Other loans 40 368
---------- ----------
Total 95,482 80,507
Less unearned interest and deferred fees 108 90
---------- ----------
Net loans $ 95,374 $ 80,417
========== ==========
The elements of the investment in direct financing leases at December 31
are as follows:
(Expressed in Thousands)
1997 1996
---------- ----------
Rentals receivable $ 24 $ 194
Estimated residual value of leased assets 47 154
---------- ----------
Subtotal 71 348
Unearned income (1) (14)
---------- ----------
Total net investment in direct financing leases $ 70 $ 334
========== ==========
The Corporation had no loans at December 31, 1997 and 1996, that were
specifically classified as impaired. Non-accrual loans amounted to $540,000
and $354,000 at December 31, 1997, and 1996, respectively. The amount of
interest income that would have been recognized had the loans performed in
accordance with their original terms was $34,600 and $29,000 for 1997 and
1996, respectively.
29
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
December 31,
1997 1996 1995
----------- ----------- -----------
Balance, beginning of year $ 1,160,302 $ 1,148,692 $ 946,625
Additions charged to operating expense 130,500 70,600 49,600
Recoveries 12,418 24,889 208,874
----------- ----------- -----------
Total 1,303,220 1,244,181 1,205,099
Less loans charged-off 85,457 83,879 56,407
----------- ----------- -----------
Balance, end of year $ 1,217,763 $ 1,160,302 $ 1,148,692
=========== =========== ===========
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
1997 1996 Years
----------- ----------- -----------
Land $ 794,116 $ 794,116
Land improvements 223,004 223,004 20
Leasehold improvements 396,898 394,847 25
Buildings 2,909,684 2,856,663 20 - 50
Furniture, fixtures & equipment 2,140,792 2,004,493 3 - 20
----------- -----------
Total 6,464,494 6,273,123
Less accumulated depreciation 3,379,407 3,023,698
----------- -----------
Premises and equipment, net $ 3,085,087 $ 3,249,425
=========== ===========
Charges to operations for depreciation approximated $366,695, $351,511,
and $264,091 for 1997, 1996, and 1995, respectively.
30
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 6 - DEPOSITS
The composition of the banks' deposits at December 31 follows:
(Expressed in Thousands)
1997
-------------------------------------------------------
Demand
-------------------------
Noninterest Interest
Bearing Bearing Savings Time
---------- ---------- ---------- ----------
Individuals, partnerships and corporations $ 13,203 $ 20,483 $ 40,292 $ 55,994
United States Government 40 - - -
States and political subdivisions 87 2,426 1,745 1,653
Commercial banks 169 - - 300
Other depository institutions 4 - - 10
Certified and official checks 639 - - -
---------- ---------- ---------- ----------
Total $ 14,142 $ 22,909 $ 42,037 $ 57,957
========== ========== ========== ==========
(Expressed in Thousands)
1996
-------------------------------------------------------
Demand
-------------------------
Noninterest Interest
Bearing Bearing Savings Time
---------- ---------- ---------- ----------
Individuals, partnerships and corporations $ 10,981 $ 20,046 $ 37,808 $ 50,205
United States Government 210 - - -
States and political subdivisions 246 3,514 411 818
Commercial banks - - - 100
Other depository institutions 207 - - 10
Certified and official checks 715 - - -
---------- ---------- ---------- ----------
Total $ 12,359 $ 23,560 $ 38,219 $ 51,133
========== ========== ========== ==========
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $11,947,000 and $10,475,000 at December 31,
1997 and 1996, respectively.
A maturity distribution of time certificates of deposit of $100,000 or more at
December 31, 1997, follows:
Due in three months or less $ 4,297,000
Due after three months through six months 1,128,000
Due after six months through twelve months 1,668,000
Due after one year through five years 4,854,000
------------
Total $ 11,947,000
============
31
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
1997 1996 1995
---------- ---------- ----------
Currently payable:
Federal $ 928,070 $ 734,047 $ 679,884
State 154,279 112,528 109,119
Deferred:
Federal (103,896) (29,825) (54,675)
State (15,597) (3,597) (7,101)
---------- ---------- ----------
Income tax expense $ 962,856 $ 813,153 $ 727,227
========== ========== ==========
The following temporary differences gave rise to the deferred tax asset at
December 31:
1997 1996
----------- -----------
Allowance for loan losses $ 293,441 $ 257,119
Deferred loan fees 36,863 30,560
Accrued interest on non-performing loans 33,825 27,712
Deferred compensation 64,698 26,730
Deferred directors fees 19,885 17,865
Depreciation due to purchase accounting adjustments (61,584) (71,228)
Deferred state income tax (2,887) (11,757)
Other, net (17,188) (11,885)
----------- -----------
Total deferred tax asset - federal 367,053 265,116
Total deferred tax asset - state 50,553 34,956
----------- -----------
417,606 300,072
Deferred tax assets (liabilities) arising from
market adjustments of securities available
for sale Federal (63,618) 41,501
State (8,816) 3,907
----------- -----------
Total deferred tax assets $ 345,172 $ 345,480
=========== ===========
32
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 7 - INCOME TAX (CONTINUED)
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:
1997 1996 1995
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
---------- ------ ---------- ------ ---------- ------
Computed tax at statutory
Federal rate $ 983,764 34.0% $ 835,430 34.0% $ 747,175 34.0%
Plus state income taxes net
Of federal tax benefits 91,530 3.2 71,894 2.9 67,332 3.1
---------- ------ ---------- ------ ---------- ------
1,075,294 37.2 907,324 36.9 814,507 37.1
Increase (decrease) in taxes
resulting from:
Tax exempt income (137,389) (4.7) (106,073) (4.3) (111,874) (5.1)
Nondeductible interest expense 16,602 0.6 6,825 0.3 11,078 0.5
Nondeductible goodwill 1,376 0.0 7,696 0.3 8,686 0.4
Others - net 6,973 0.2 (2,619) (0.1) 4,830 0.2
---------- ------ ---------- ------ ---------- ------
Actual tax expense $ 962,856 33.3% $ 813,153 33.1% $ 727,227 33.1%
========== ====== ========== ====== ========== ======
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 $127,600, $116,300, and $106,300
for the years ended December 31, 1997, 1996, and 1995, respectively.
In 1996, the Corporation implemented a non-qualified, deferred compensation
plan for certain corporate officers. Under the plan, the officers can elect
to defer part of their annual bonus. The Corporation incurred no additional
salary and benefits expense as a result of the plan.
NOTE 9 - REPURCHASE AGREEMENTS
Repurchase agreements represent borrowings of a short duration, usually less
than 30 days. The securities underlying the agreements were under the Banks'
control. Information related to these borrowings is summarized below:
1997 1996 1995
----------- ----------- -----------
Balance at end of year $ 4,074,996 $ 5,930,691 $ 749,224
Average balance during the year 5,117,789 3,703,803 457,849
Maximum month-end balance 5,922,489 5,930,691 859,954
Weighted-average rate during the year 3.69% 3.42% 3.55%
Rate at December 31 3.22% 4.07% 2.79%
33
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
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:
1997 1996
------------ ------------
Commitments to extend credit $ 7,273,000 $ 7,987,000
Standby letters of credit 48,000 330,000
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. All of the standby letters of credit expire in 1998. 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, 1997, the subsidiary Banks had unused lines of credit
available with the FHLB in the aggregate amount of $2,386,000. There were no
outstanding borrowings at December 31, 1997.
34
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
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 $3,257,242 at December 31, 1997, and
$4,720,986 at December 31, 1996.
The following is an analysis of loan activity to directors, executive
officers, and associates of the Corporation and its subsidiaries:
December 31,
1997 1996
------------ ------------
Balance, January 1 $ 4,720,986 $ 4,832,062
New loans during the period 671,023 1,218,597
Repayments during the period (2,134,767) (1,329,673)
------------ ------------
Ending balance $ 3,257,242 $ 4,720,986
============ ============
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 and Eastern Ohio. 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, 1997, 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, 1997, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year, are
as follows:
December 31, 1998 $ 107,000
December 31, 1999 90,750
December 31, 2000 56,000
December 31, 2001 36,000
December 31, 2002 32,000
Thereafter 336,000
Rental expense under operating leases approximated $107,000 in 1997; $104,000
in 1996; and $87,000 in 1995.
35
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 14 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
1997 1996 1995
---------- ---------- ----------
Directors fees $ 132,200 $ 122,300 $ 120,750
Stationery and supplies 135,751 143,710 147,859
Regulatory assessment and deposit insurance 80,152 67,592 185,049
Advertising 101,816 104,568 119,798
Postage and transportation 118,915 118,247 106,078
Other taxes 116,892 89,509 78,465
Service Expense 131,284 106,511 105,735
Other 490,558 545,892 541,797
---------- ---------- ----------
Total $1,307,568 $1,298,329 $1,405,531
========== ========== ==========
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, 1997 and 1996, were $709,000 and
$655,000, 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 1998, without approval of the
Comptroller of the Currency, of approximately $2,400,000, plus an additional
amount equal to the Bank's net profit for 1998 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 - CASH FLOWS INFORMATION
For the purpose of presentation in the Statement of Cash Flows, cash and cash
equivalents are defined as cash on hand and amounts due from banks.
Cash payments for interest in 1997, 1996, and 1995, were $4,696,866,
$3,854,727, and $3,338,364, respectively. Cash payments for income taxes for
1997, 1996, and 1995 were $1,081,701, $872,395, and $803,600, respectively.
36
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 18 - 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, 1997,
that the Banks meet all capital adequacy requirements to which they are
subject.
As of December 31, 1997, 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.
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, 1997:
Total Capital $ 14,862 15.4% $ 7,719 8.0% $ 9,649 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 13,656 14.2% $ 3,860 4.0% $ 5,789 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 13,656 8.7% $ 4,705 3.0% $ 7,842 5.0%
(to Average Assets)
As of December 31, 1996:
Total Capital $ 13,424 16.0% $ 6,732 8.0% $ 8,415 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 12,406 14.7% $ 3,366 4.0% $ 5,049 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 12,406 8.6% $ 4,313 3.0% $ 7,188 5.0%
(to Average Assets)
37
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 19 - 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.
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.
38
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 19 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimates of fair values of financial instruments are summarized as
follows at December 31:
(Expressed in Thousands)
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Financial assets:
Cash and short-term investments $ 11,747 $ 11,747 $ 10,132 $ 10,132
Investment securities 45,444 45,503 50,440 50,463
Loans (1) 94,086 94,836 78,922 79,567
Financial liabilities:
Deposits 137,045 137,371 125,271 125,018
Short-term borrowings 4,075 4,075 5,931 5,931
(1) Excludes net leases with a carrying amount of $70,000 and $334,000
at December 31, 1997 and 1996, respectively.
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,
1997 1996
----------- -----------
ASSETS
Cash $ 281,141 $ 267,641
Investment in common stock - available
for sale (at market value) 97,162 1,947
Investment in subsidiary banks 13,693,981 12,236,514
Land and buildings, net 188,280 199,679
Other assets 84,088 54,933
----------- -----------
Total assets $14,344,652 $12,760,714
=========== ===========
LIABILITIES
Accrued expenses $ 25,370 $ 32,817
Deferred compensation 190,287 78,619
----------- -----------
Total liabilities 215,657 111,436
STOCKHOLDERS' EQUITY 14,128,995 12,649,278
=========== ===========
Total liabilities and stockholders'
equity $14,344,652 $12,760,714
=========== ===========
39
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
---------- ---------- ----------
INCOME
Dividends from subsidiary banks $ 733,600 $ 585,400 $ 530,680
Rental income 52,000 48,258 29,550
Gain on sale of investments - - 170,075
Other income 100,507 67,238 67,212
---------- ---------- ----------
Total income 886,107 700,896 797,517
---------- ---------- ----------
EXPENSES
Salary and employee benefits 111,668 78,619 -
Interest expense 2,190 1,995 1,802
Occupancy expense 11,399 11,400 11,400
Other expenses 138,614 105,949 144,948
---------- ---------- ----------
Total expenses 263,871 197,963 158,150
---------- ---------- ----------
Income before income taxes and
equity in undistributed income
of subsidiaries 622,236 502,933 639,367
INCOME TAX BENEFIT (EXPENSE) 45,757 29,859 (43,413)
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 1,262,575 1,111,202 874,393
---------- ---------- ----------
Net income $1,930,568 $1,643,994 $1,470,347
========== ========== ==========
40
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996 1995
---------- ---------- ----------
OPERATING ACTIVITIES
Net income $1,930,568 $1,643,994 $1,470,347
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 15,447 15,448 15,448
Change in deferred tax benefit (42,842) (29,213) 1,770
Undistributed earnings of affiliates (1,262,575) (1,111,202) (874,393)
Changes in operating assets
and liabilities:
Other assets 4,266 (2,291) 5,142
Deferred compensation 109,607 78,619 -
Other liabilities (7,447) 4,835 (5,209)
Gain on sale of securities - - (170,075)
---------- ---------- ----------
Net cash provided by
operating activities 747,024 600,190 443,030
---------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of securities - - 183,275
Purchase of investment securities (78,619) - -
---------- ---------- ----------
Net cash provided by (used in)
investing activities (78,619) - 183,275
---------- ---------- ----------
FINANCING ACTIVITIES
Dividends paid (654,905) (577,885) (414,151)
---------- ---------- ----------
Net cash used in
financing activities (654,905) (577,885) (414,151)
---------- ---------- ----------
INCREASE IN CASH
AND CASH EQUIVALENTS 13,500 22,305 212,154
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 267,641 245,336 33,182
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 281,141 $ 267,641 $ 245,336
========== ========== ==========
Supplemental disclosures:
Interest expense note: Cash payments for interest were $2,190, $1,995, and
$1,802 in 1997, 1996, and 1995, respectively.
Income taxes note: The parent company made income tax payments of $4,200,
$1,000, and $40,800 in 1997, 1996, and 1995, respectively.
41
----------------------------------------------
First West Virginia Bancorp, Inc.
DIRECTORS
George F. Beneke. . . Chairman of the Board, 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. . . . . . . . Vice 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
Peter C. Schuetz. . . . . . . . . . . . . . . . . . . Retired Dairy Consultant
Ronald L. Solomon. . . . . . . . . . . .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 of the Board
Laura G. Inman. . . . . . . . . . . . . . . . . . . . . . . . .Vice Chairman
Ronald L. Solomon. . . . . . . . . . . . President and Chief Executive Officer
Charles K. Graham. . . . . . . . . . . . . . .Executive Vice President - Loans
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
----------------------------------------------
42
----------------------------------------------
SUBSIDIARY
Progressive Bank N.A.
Wheeling, WV 26003
DIRECTORS OFFICERS
Dominic V. Agostino James C. Inman, Jr. R. Clark Morton, Chairman of the Board
George F. Beneke Laura G. Inman Ronald L. Solomon, Vice Chairman & Chief Executive Officer
Dr. Clyde D. Campbell H. Dennis Long Charles K. Graham, President
Robert R. Cicogna R. Clark Morton Beverly A. Barker, Executive Vice President/Cashier
Gary P. DeVendra Karl W. Neumann Laura G. Inman, Senior Vice President
Sylvan J. Dlesk William G. Petroplus David E. Yaeger, Senior Vice President
Charles K. Graham Thomas L. Sable Francie P. Reppy, Controller
C. Gary Hill Peter C. Schuetz Gary S. Martin, Vice President/Marketing Coordinator
Ben R. Honecker Ronald L. Solomon Brad D. Winwood, Vice President
Stephanie A. LaFlam, Executive Secretary
EMERITUS DIRECTOR 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 Vice President/Human Resource Manager/
T. Stewart Hopkins Edward P. Otte Assistant Office Manager Warwood
David E. Wharton, Assistant Vice President/Office Manager Warwood
Bryan S. Ramsey, Business Development/Loan Officer
Mitzi K. Mattern, Credit Card Manager/Office Manager Wellsburg
Lisa M. Minor, Office Manager Moundsville
Shirrel A. Czap, Assistant Office Manager Bellaire
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
Margaret D. Brown Dale F. Riggs Dale F. Riggs, Chairman
William L. Fury Ronald L. Solomon Ronald L. Solomon, Vice Chairman
Charles K. Graham Douglas M. Stewart Connie R. Tenney, President/Chief Executive Officer/Cashier/Secretary
J. Burton Hunter, III Connie R. Tenney Larry J. Chidester, Assistant Vice President
David R. Rexroad J. David Thomas J. Burton Hunter, III, Assistant Secretary
Rickie E. Rice Cathy Sue Wingler, Assistant Cashier
Robin K. Forinash, Office Manager Weston
----------------------------------------------
43
Progressive Bank N.A. - Wheeling
(Photograph) (Photograph)
Wellsburg Office Belaire Office
Wellsburg, WV Bellaire, OH
(Photograph)
Woodsdale Office
Wheeling, WV
(Photograph) (Photograph)
Warwood Office Moundsville Kroger Store Office
Wheeling, WV Moundsville, WV
Progressive Bank, N.A. - Buckhannon
(Photograph) (Photograph)
Buckhannon Office Weston Office
Buckhannon, WV Weston, WV
44
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
1-800-368-5948
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 14, 1998, 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, 1997, may
obtain a copy of the Corporation's 1997 Form 10-K Report (to be filed with the
Securities and Exchange Commission before March 31, 1998) by writing to Ronald
L. Solomon, President, First West Virginia Bancorp, Inc., 875 National Road,
Wheeling, WV 26003.