49
EXHIBIT 13.1
Annual Report to Shareholders
50
(FIRST WEST VIRGINIA BANCORP LETTERHEAD)
P.O. Box 6671
Wheeling, WV 26003
Dear Shareholders,
I am pleased to present to you the record earnings performance
contained in the 1998 Annual Report of First West Virginia Bancorp, Inc.
Consolidated net income for 1998 was $2,033,025 or $1.62 per share, a 5.3%
increase over the $1,930,568 or $1.54 per share earned for 1997. Total assets
for the Holding Company increased 9.8% over the prior year to $171,395,079, at
December 31, 1998 as compared to $156,142,583 at December 31, 1997. Total
stockholders' equity increased to $15,460,938, an increase of 9.4% over the
prior year. The book value per share was $12.30 at December 31, 1998 as
compared to $11.24 a year earlier.
During 1998, the Board of Directors declared and paid cash dividends
of $.58 per share, an increase of 11.5% over the $.52 per share paid during
1997. Additionally, on September 8, 1998 the Board of Directors declared a 4%
common stock dividend payable to shareholders of record on October 1, 1998.
As evidence of our continued commitment to small businesses within
the community, in May, 1998 the United States Small Business Administration
honored Progressive Bank, N.A. Wheeling as one of its top 10 lenders in West
virginia. In November, 1998, Progressive Bank, N.A. Wheeling was again
recognized by the United States Small Business Administration as one of the
top 25 lenders in the Pittsburgh, Pennsylvania lending area.
During the third quarter of 1998, Progressive Bank, N.A. Wheeling
installed an automated teller machine in Wellsburg, West Virginia. This ATM
enhances our Wellsburg branch office by providing an additional banking outlet
for our customers.
It is with deep sorrow that we note the passing of Peter C. Schuetz,
longtime director of First West Virginia Bancorp, Inc. and Director of
Progressive Bank, N.A. His experience, support and dedication has left its
mark on the growth of the Corporation over the years and for many years to
come.
The history of First West Virginia Bancorp, Inc. has been built on a
philosophy of safety and soundness, service and commitment to our customers
and strategic growth. This approach has brought success to the Corporation
and will continue to lead our community banks in the years ahead.
I would be remiss not to express my gratitude to our loyal customers
and shareholders, as well as directors, officers and employees, all of whom
are an integral part of our organization. As always, your comments and
suggestions are appreciated.
Sincerely,
Ronald L. Solomon
Ronald L. Solomon
Vice Chairman, President
and Chief Executive Officer
51
- ----------------------------------------------------------------------------
Table One
SELECTED FINANCIAL DATA
(In thousands, except per share data)
- ----------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Years ended
December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
SUMMARY OF OPERATIONS
Total interest income $ 12,452 $ 11,507 $ 10,067 $ 8,937 $ 7,783
Total interest expense 5,324 4,745 3,925 3,421 2,868
Net interest income 7,128 6,762 6,142 5,516 4,915
Provision for loan losses 256 131 71 50 77
Total other income 787 639 568 738 725
Total other expenses 4,674 4,377 4,182 4,007 3,641
Income before income taxes 2,985 2,893 2,457 2,198 1,922
Net income 2,033 1,931 1,644 1,470 1,288
PER SHARE DATA (1)
Net income $ 1.62 $ 1.54 $ 1.31 $ 1.17 $ 1.02
Cash dividends declared (2) .58 .52 .46 .33 .36
Book value per share 12.30 11.24 10.06 9.31 8.25
AVERAGE BALANCE SHEET SUMMARY
Total loans, net $ 99,345 $ 86,609 $ 74,469 $ 66,058 $ 56,991
Investment securities 48,543 51,754 48,557 46,020 50,282
Deposits - Interest Bearing 127,520 120,589 112,768 100,488 95,980
Long-term debt -- -- -- -- 44
Stockholders' equity 14,697 13,400 12,186 11,170 10,253
Total Assets 164,630 153,290 137,810 124,145 117,996
BALANCE SHEET
Investments $ 54,735 $ 45,444 $ 50,440 $ 45,996 $ 45,551
Loans 103,555 95,374 80,417 72,006 61,667
Other Assets 13,105 15,325 13,689 9,953 9,445
------- ------- ------- ------- -------
Total Assets $171,395 $156,143 $144,546 $127,955 $116,663
======= ======= ======= ======= =======
Deposits $147,785 $137,045 $125,271 $114,895 $105,730
Repurchase Agreements 6,994 4,075 5,931 749 105
Other Liabilities 1,155 894 695 602 460
Shareholders' Equity 15,461 14,129 12,649 11,709 10,368
------- ------- ------- ------- -------
Total Liabilities and
Shareholders' Equity $171,395 $156,143 $144,546 $127,955 $116,663
======= ======== ======= ======= =======
SELECTED RATIOS
Return on average assets 1.23% 1.26% 1.19% 1.18% 1.09%
Return on average equity 13.83% 14.41% 13.49% 13.16% 12.56%
Average equity to average assets 8.93% 8.74% 8.84% 9.00% 8.69%
Dividend payout ratio (1) (2) 35.80% 33.77% 35.11% 28.21% 35.29%
Loan to Deposit ratio 70.07% 69.59% 64.19% 62.67% 58.32%
(1) Adjusted for a 4 percent common stock dividend to stockholders of record
as of October 1, 1998, a 3 for 2 stock split in the effect of a fifty
(50) percent common stock to shareholders of record as of October 1,
1997, a 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
52
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, 1998, 1997 and 1996. This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements and
the Notes, thereto.
OVERVIEW
The Holding Company reported net income of $2,033,025 for the year ended
December 31, 1998 as compared to $1,930,568 for the year ended December 31,
1997. The 5.3% increase in earnings during 1998 over 1997 can be primarily
attributed to increased net interest income and noninterest income, partially
offset by increased operating expenses and the provision for loan losses.
Earnings per common share were $1.62 in 1998 compared to $1.54 in 1997.
Operational earnings improved with net interest income increasing $365,910 or
5.4%, to $7,128,272 during 1998 as compared to the same period in 1997. 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, was 1.23% in 1998 and 1.26% in 1997. The
return on average equity (ROE), which measures the return on the stockholders'
investment, was 13.83% in 1998 and 14.41% in 1997.
The Holding Company ended the year 1998 with total assets of $171,395,079 an
increase of 9.8% over the $156,142,583 reported for the year ended December
31, 1997. Loans net of reserves increased in 1998 by $8,276,517 to
$102,432,407, as compared to $94,155,890 reported at December 31, 1997. Total
deposits increased in 1998 by $10,740,006, from $137,044,813 at December 31,
1997 to $147,784,819 at December 31, 1998, primarily due to the increase in
Time deposits.
Non-performing assets were $664,000 at December 31, 1998, down 20.9%, from
$839,000 at December 31, 1997. The allowance for loan losses amounted to
$1,122,912 at December 31, 1998 or 1.1% of total loans, compared to $1,217,763
or 1.3% of total loans at December 31, 1997.
The Board of Directors declared and paid cash dividends of $.58 per share
during 1998 as compared to $.52 in 1997. On September 8, 1998, the Board of
Directors also declared a four percent common stock dividend to its
shareholders of record as of October 1, 1998. Accordingly, the Holding
Company issued 48,167 shares of common stock on October 26, 1998.
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, 1998, 1997, and 1996.
Net interest income was $7,128,272 in 1998, an increase of $365,910 or 5.4%,
from 1997, following an increase in 1997 of $620,713 or 10.1% from 1996. The
increase in net interest income for 1998 and 1997 was primarily attributable
to the growth in the loan portfolio. Interest and fees on loans and lease
financing increased $1,150,799 or 14.5% from 1997 to 1998 and $1,085,701 or
15.9% from 1996 to 1997. The increased interest income on loans and lease
financing for both years resulted from increases in the average loan volume of
$12,736,000 in 1998 and $12,140,000 in 1997. Increases in commercial,
residential real estate, and installment loans primarily contributed to the
loan growth during 1998. Growth in installment, commercial and residential
real estate loans primarily contributed to the increase in 1997. The average
yield on loans decreased slightly from 9.15% in 1997 to 9.14% in 1998 and
decreased from 9.19% in 1996 to 9.15% in 1997.
---------------------------------------------------------------
3
53
- -----------------------------------------------------------------------
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, 1998, 1997, and 1996. Average balance sheet information as
of December 31, 1998, 1997, and 1996 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, 1998 December 31, 1997 December 31, 1996
----------------------------- ------------------------------ ----------------------------
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 $ 38,387 $ 2,399 6.25% $ 45,157 $ 2,861 6.34% $ 42,203 $ 2,501 5.93%
Obligations of states and
political subdivisions 8,155 382 4.68% 5,470 264 4.83% 4,869 247 5.07%
Other securities 2,001 124 6.20% 1,127 69 6.12% 1,485 101 6.80%
-------- ------- ------- -------- -------- ------- ------- ----- -------
Total Investment securities: 48,543 2,905 5.98% 51,754 3,194 6.17% 48,557 2,849 5.87%
Interest bearing deposits 2,607 138 5.29% 533 28 5.25% 1,556 81 5.21%
Federal funds sold 6,085 330 5.42% 6,561 357 5.44% 5,590 295 5.28%
Loans, net of unearned income 99,345 9,078 9.14% 86,609 7,928 9.15% 74,469 6,842 9.19%
-------- ------- ------- -------- -------- ------- ------- ----- -------
Total earning assets 156,580 12,451 7.95% 145,457 11,507 7.91% 130,172 10,067 7.73%
Cash and due from banks 4,369 4,104 4,000
Bank premises and equipment 3,056 3,178 3,313
Other assets 1,785 1,741 1,496
Allowance for possible loan losses (1,160) (1,190) (1,171)
-------- -------- --------
Total Assets $164,630 $ 153,290 $137,810
======== ======== ========
LIABILITIES
Certificates of deposit $ 60,277 $ 3,356 5.57% $ 55,149 $ 2,945 5.34% $ 45,579 $ 2,286 5.02%
Savings deposits 43,418 1,270 2.93% 41,376 1,102 2.66% 39,594 997 2.52%
Interest bearing demand deposits 23,825 471 1.98% 24,064 509 2.12% 23,880 515 2.16%
Federal funds purchased and
Repurchase agreements 6,600 227 3.44% 5,118 189 3.69% 3,715 127 3.42%
-------- ------- ----- ------- -------- ------- ------- -------- ------
Total interest bearing liabilities 134,120 5,324 3.97% 125,707 4,745 3.77% 112,768 3,925 3.48%
Demand deposits 14,720 13,235 12,128
Other liabilities 1,093 948 728
-------- ------- --------
Total Liabilities 149,933 139,890 125,624
STOCKHOLDERS' EQUITY 14,697 13,400 12,186
-------- ------- --------
Total Liabilities
and Stockholders' Equity $164,630 $153,290 $137,810
======== ======= ========
Net yield on earning assets $ 7,127 4.55% $ 6,762 4.65% $ 6,142 4.72%
======= ====== ======= ====== ======= =====
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 1998, 1997, and 1996,
respectively. The effect of this adjustment is presented below (in thousands).
Obligations of states and
political subdivisions:
Investment securities $ 8,155 $ 637 7.81% $ 5,470 $ 440 8.04% $ 4,869 $ 412 8.46%
Loans 99,345 9,215 9.28% 86,609 8,018 9.26% 74,469 6,912 9.28%
========= ======= ===== ========= ======= ====== ======= ======= =====
Total earning assets $ 156,580 $12,843 8.20% $ 145,457 $11,773 8.09% $130,172 $10,302 7.91%
========= ======= ===== ========= ======= ====== ======= ======= =====
Taxable equivalent net yield on
earning assets $ 7,519 4.80% $ 7,028 4.83% $ 6,377 4.90%
======= ====== ======= ====== ======= =====
---------------------------------------------------------------
4
54
- ---------------------------------------------------------------------
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, 1998, 1997, and 1996 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.
1998 Compared to 1997 1997 Compared to 1996 1996 Compared to 1995
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 $ (429) $ (33) $ (462) $ 175 $ 185 $ 360 $ 156 $ 139 $ 295
Obligations of states and
political subdivisions 130 (12) 118 30 (13) 17 11 (12) (1)
Other securities 53 2 55 (24) (8) (32) (29) 8 (21)
Interest bearing deposits 109 1 110 (53) -- (53) 86 (11) 75
Federal funds sold (26) (1) (27) 51 11 62 45 (36) 9
Loans, net of unearned income 1,165 (15) 1,150 1,116 (30) 1,086 773 -- 773
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest earned 1,002 (58) 944 1,295 145 1,440 1,042 88 1,130
INTEREST EXPENSE ON:
- -----------------------
Time deposits 273 138 411 480 179 659 456 96 552
Savings deposits 54 114 168 45 60 105 (75) (80) (155)
Interest bearing demand deposits (5) (33) (38) 4 (10) (6) 42 (45) (3)
Federal funds purchased and
Repurchase agreements 55 (17) 38 48 14 62 120 (10) 110
Long-term debt -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest paid 377 202 579 577 243 820 543 (39) 504
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest differential $ 625 $ (260) $ 365 $ 718 $ (98) $ 620 $ 499 $ 127 $ 626
======= ======= ======= ======= ======= ======= ======= ======= =======
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 1998, 1997, 1996,
and 1995, respectively.
Obligations of states and
political subdivisions:
Investment securities $ 216 $ (19) $ 197 $ 51 $ (23) $ 28 $ 18 $ (19) $ (1)
Loans 1,179 18 1,197 1,127 (21) 1,106 780 8 788
======= ======= ======= ======= ======= ======= ======= ======= =======
Total interest earned $ 1,102 $ (32) $ 1,070 $ 1,327 $ 144 $1,471 $1,056 $ 89 $ 1,145
======= ======= ======= ======= ======= ======= ======= ======= =======
Net interest differential $ 725 $ (234) $ 491 $ 750 $ (99) $ 651 $ 513 $ 128 $ 641
======= ======= ======= ======= ======= ======= ======= ======= =======
---------------------------------------------------------------
5
55
Net Interest Income - Continued
The decrease in the average volume in investment securities resulted in the
overall decrease in interest earned on investment securities during 1998.
Interest income on investment securities during 1998 decreased $286,947 or
9.0% from 1997. In 1997, interest income on investment securities increased
$343,159 or 12.0% from 1996. 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. The average
volume of investment securities decreased $3,211,000 in 1998 and follows an
increase of $3,197,000 in 1997. The average yield on investment securities
decreased .19%, from 6.17% in 1997 to 5.98% in 1998 and increased .30% from
5.87% in 1996 to 6.17% in 1997.
Interest expense in 1998 increased $579,394 or 12.2% from 1997, compared to an
increase in 1997 of $819,038 or 20.9% from 1996. The increases in interest
expense for both 1998 and 1997 were primarily the result of deposit growth.
During 1998, the average volume of interest bearing deposits increased
$6,931,000 or 5.7% as compared to 1997, and increased $11,536,000 or 10.6% in
1997 as compared to 1996. Average volume increases of interest bearing
deposits during 1998 and 1997 were primarily the result of the growth in
certificates of deposit.
The average yield paid on interest bearing liabilities increased .20%, from
3.77% in 1997 to 3.97% in 1998, and follows an increase of .29%, from 3.48% in
1996 to 3.77% in 1997. The increase in the average yield on interest bearing
liabilities during 1998 was primarily the result of an increase in the
interest rates paid on certificates of deposit and savings deposits. During
1997, the increase in the average yield on interest bearing liabilities 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 4.80% for 1998, as
compared to 4.83% and 4.90% earned during 1997 and 1996, 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 $75,196 in 1998, up 18.1%, from 1997, as compared to
an increase of 13.7% from 1996 to 1997. The increase in service charges in
both 1998 and 1997 was primarily due to an increase in the number of 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 1998, the
Holding Company accounted for securities gains of $2,786 and securities losses
of $1,608 and were attributable to sales of marketable equity securities. In
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.
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 1998, other
operating income was $294,346, an increase of $69,762 or 31.1% over 1997, and
follows an increase of $21,555, or 10.6%, over 1996. The increase in other
operating income during 1998 was primarily due to the increased ATM charges.
In 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.
Non-Interest Expense
Salary and employee benefits is the largest component of non-interest expense.
For the year 1998, salary and employee benefits increased $134,189 or 5.9%
over the same period in 1997. During 1997, salary and employee benefits
increased $161,549 or 7.6% over 1996. The increase in salary and employee
benefits in both 1998 and 1997 was primarily due to normal annual merit
adjustments.
---------------------------------------------------------------
6
56
- -------------------------------------------------------------------------
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, 1998 and December 31, 1997 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, 1998 December 31, 1997
--------------------------------------------- --------------------------------------------
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 $ -- --% $ 5,775 6.01 % $ -- -- % $ 7,794 6.11 %
After One But
Within Five Years -- -- 18,815 5.92 -- -- 21,970 6.38
After Five But
Within Ten Years -- -- 10,517 6.23 -- -- 2,263 6.94
After Ten Years -- -- -- -- -- -- -- --
------- ----- ------- ------ -------- ------ -------- -----
-- -- 35,107 6.03 -- -- 32,027 6.35
States & Political Subdivisions
Within One Year 950 7.71 -- -- 436 6.31 -- --
After One But
Within Five Years 5,099 6.52 -- -- 3,238 7.16 -- --
After Five But
Within Ten Years 5,121 6.48 516 7.45 941 7.55 516 7.46
After Ten Years 180 6.06 -- -- 163 7.72 -- --
------- ----- ------- ------ -------- ------ -------- -----
11,350 6.59 516 7.45 4,778 7.18 516 7.46
Corporate Debt Securities
Within One Year -- -- 349 5.94 -- -- -- --
After One But
Within Five Years -- -- 106 7.98 -- -- 209 7.83
------- ----- ------- ------ -------- ------ -------- -----
-- -- 455 6.42 -- -- 209 7.83
Mortgage-Backed Securities -- -- 6,503 6.35 -- -- 7,287 6.55
Equity Securities -- -- 804 5.30 -- -- 627 5.45
------- ----- ------- ------ -------- ------ -------- -----
Total $ 11,350 6.59 % $ 43,385 6.09 % $ 4,778 7.18 % $ 40,666 6.39 %
======= ===== ======= ===== ======= ====== ======== =====
---------------------------------------------------------------
7
57
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 $155,239 or 11.9% in 1998 over 1997 and increased
$9,239 or .7% in 1997. The increase in other operating expenses during 1998
was primarily due to the increase in other expenses, service expense,
stationery and supplies expense, other taxes and postage expense. 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.
Income Taxes
Income tax expense for the period ended December 31, 1998 was $951,803, a
decrease of $11,053 over 1997. The decrease was primarily due to the increase
in tax exempt income during 1998. Components of the income tax expense for
December 31, 1998 were $784,036 for federal taxes and $167,767 for West
Virginia corporate net income taxes. Income tax expense for the period ended
December 31, 1997 increased by $149,703 over 1996. Increases in income tax
expense were primarily due to changes in pre-taxable income of $436,277 in
1997 over 1996.
For federal income tax purposes, tax-exempt income is based on qualified
state, county, and municipal bonds and loans. Tax-exempt income was $586,837
in 1998; $400,081 in 1997; and $352,306 in 1996. 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 $1,211,000 in 1998; $1,269,000 in 1997; and $1,025,000 in
1996.
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, 1998,
1997 and 1996. Additional information regarding income taxes is contained in
Note 7 to the Consolidated financial statements.
Balance Sheet Analysis
Investments
Investment securities increased $9,291,446 or 20.4% from $45,443,954 at
December 31, 1997, to $54,735,400 at December 31, 1998 and follows a decrease
of $4,996,235 or 9.9% from $50,440,189 at December 31, 1996 to $45,443,954 at
December 31, 1997. The increase in investment securities at December 31, 1998
was primarily the result of increased deposit growth. The decrease in
investment securities during 1997 was used to fund the increased loan 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 78.3% of total securities at December 31, 1998,
as compared to 88.4% at December 31, 1997. 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, 1998, the Holding Company had
approximately 79% of the investment portfolio classified as available for
sale, while 21% was classified as held to maturity.
---------------------------------------------------------------
8
58
- ---------------------------------------------------------------------------
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,
1998 and December 31, 1997 (in thousands):
December 31, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ ----------
Commercial $ 858 $ 6,024 $ 6,379
Real Estate - construction 41 -- --
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
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
========= ========= =========
The following table presents an analysis of fixed and variable rate loans as
of December 31, 1998 and December 31, 1997 along with the contractual
maturities of loans other than installment loans and residential mortgages (in
thousands):
December 31, 1998
---------------------------------------
After one
In one Year Through After
Year or Less Five Years Five Years
------------ ------------ -----------
Fixed Rates $ 626 $ 4,922 $ 2,266
Variable Rates 273 1,102 4,113
--------- --------- ---------
Total $ 899 $ 6,024 $ 6,379
========= ========= =========
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
========= ========= =========
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9
59
- ---------------------------------------------------------------------------
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, 1998 and December 31, 1997, therefore the carrying value of securities
available for sale were increased by $253,924 and $195,928, respectively.
The market value of securities classified as held to maturity was above book
value by $74,498 and $59,428 at December 31, 1998 and December 31, 1997,
respectively.
Loans
Loans were $103,555,319 at December 31, 1998, an increase of $8,181,666 or
8.6% from 1997, and follows an increase in 1997 of $14,956,973 or 18.6% from
1996. The loan growth during 1998 can be attributed primarily to increases in
commercial loans, residential real estate loans and installment loans which
increased approximately $2,825,000, $2,361,000 and $2,235,000, respectively.
Commercial loan increases during 1998 were primarily as a result of expansion
of area businesses and new businesses combined with the increased
participation in the Small Business Administration program. Residential real
estate loans increased in 1998 primarily as a result of new purchases and
refinancing due to offering competitive mortgage rates and local servicing.
Increases in third party paper with various automobile dealers primarily
contributed to the increase in installment loans in 1998.
Real estate residential loans which include real estate construction, real
estate farmland, and real estate residential loans comprised thirty-four
percent (34%) 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-four percent (24%) 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 1997 to 1998 were a 1%
increase in installment loans and a 1% decrease in residential real estate
loans. From 1996 to 1997, the changes in the composition of the loan
portfolio 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.
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 $664,000 at December 31, 1998 and $839,000 at
December 31, 1997. Total non-performing loans decreased $175,000 in 1998, as
compared to the increase of $137,000 in 1997. Loans classified as non-accrual
were $396,000 or .4% of total loans as of December 31, 1998, as compared to
$540,000 or .6% of total loans at December 31, 1997. There were no loans
classified as renegotiated at December 31, 1998 and 1997. 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. Loans past due
90 days or more increased $49,000 during 1998, after decreasing $81,000 during
1997. Loans past due 90 days or more have remained fairly consistent over the
past five years. Other real estate owned decreased $80,000 in 1998 over 1997
due to the sale of the properties by a subsidiary bank. Management continues
to monitor the 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 1.1% and 1.3% of loans
outstanding as of December 31, 1998 and 1997, respectively. Net loan charge-
offs were $350,851 during 1998 as compared to $73,039 in 1997. The net
charge-offs during 1998 and 1997 were primarily 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, 1998, the provision for possible loan losses
was $256,000 compared to $130,500, and $70,600 at December 31, 1997 and 1996,
respectively. The increased loan growth combined with the increase in net
charge-offs and in non-performing assets in 1998 and 1997 has prompted the
increase in the provision for loan losses.
The corporation has allocated the allowance for possible loan losses to
specific portfolio segments based upon historical net charge-off experience,
changes in the level of non-performing assets, local economic conditions and
management experience as presented in Table Seven.
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10
60
- -------------------------------------------------------------------------
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,
-----------------------------------------------------------
1998 1997 1996 1995 1994
Past Due 90 Days or More:
Real Estate - residential $ 76 $ 45 $ 250 $ 33 $ 32
Commercial 4 70 2 -- 2
Installment 188 104 48 60 17
------- ------- --------- --------- ---------
$ 268 $ 219 $ 300 $ 93 $ 51
------- ------- --------- --------- ---------
Renegotiated:
Real Estate - residential $ -- $ -- $ -- $ -- $ --
Commercial -- -- -- -- 232
Installment -- -- -- -- --
------- ------- --------- --------- ---------
$ -- $ -- $ -- $ -- $ 232
------- ------- --------- --------- ---------
Non-accrual:
Real Estate - residential $ 106 $ 139 $ 26 $ 56 $ 18
Commercial 184 353 299 256 218
Installment 106 48 28 39 25
------- ------- --------- --------- ---------
$ 396 $ 540 $ 353 $ 351 $ 261
------- ------- --------- --------- ---------
Other Real Estate $ -- $ 80 $ 49 $ 64 $ 64
------- ------- --------- --------- ---------
Total non-performing assets $ 664 $ 839 $ 702 $ 508 $ 608
====== ====== ======== ========= =========
Total non-performing assets
to total loans and
other real estate 0.64% 0.88% 0.87% 0.70% .98%
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 $33,000 and $34,600 for the periods ended
December 31, 1998 and 1997, respectively.
As of December 31, 1998, 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
61
- --------------------------------------------------------------------------
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,
----------------------------------------------------------
1998 1997 1996 1995 1994
Balance at Beginning of period
Allowance for Possible
Loan Losses $ 1,218 $ 1,160 $ 1,149 $ 947 $ 896
Loans Charged Off:
Real Estate - residential 65 18 35 1 --
Commercial 134 -- -- 11 2
Installment 173 67 49 44 44
-------- -------- ---------- ---------- ----------
372 85 84 56 46
Recoveries:
Real Estate - residential 5 -- -- -- --
Commercial -- 3 1 194 3
Installment 16 9 24 15 17
-------- -------- ---------- ---------- ----------
21 12 25 209 20
Net Charge-offs 351 73 59 (153) 26
Purchased Reserves -- -- -- -- --
Additions Charged to Operations 256 131 70 49 77
-------- -------- ---------- ---------- ----------
Balance at end of period: $ 1,123 $ 1,218 $ 1,160 $ 1,149 $ 947
======= ======= ========= ========= =========
Average Loans Outstanding $ 99,345 $ 86,609 $ 74,469 $ 66,058 $ 56,991
======= ======= ========= ========= =========
Ratio of net charge-offs
to Average loans
outstanding for the period 0.35% 0.08% 0.08% (0.23)% 0.05%
Ratio of the Allowance for Loan
Losses to Loans Outstanding for
the period 1.08% 1.28% 1.44% 1.60% 1.54%
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
62
- ----------------------------------------------------------------------
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, 1998
(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,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- ---------------- -------------- ----------------
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 $ 208 34.2% $ 202 34.6% $ 192 36.5% $ 215 39.9% $216 43.1%
Commercial 490 37.8 622 38.0 619 39.1 618 36.5 420 34.7
Installment 374 23.8 343 23.6 298 21.6 265 20.0 260 19.3
Others 20 4.2 20 3.8 20 2.8 20 3.6 20 2.9
Unallocated 31 -- 31 -- 31 -- 31 -- 31 --
------ ----- ------ ----- ------ ----- ---- ----- ---- ------
Total $1,123 100.0% $1,218 100.0% $1,160 100.0% $1,149 100.0% $947 100.0%
====== ===== ====== ===== ====== ===== ==== ===== ==== ======
---------------------------------------------------------------
13
63
Allowance for Loan Losses - Continued
The Corporation has historically maintained the allowance for loan losses at a
level greater than actual charge-offs. In determining the allocation of the
allowance for possible loan losses, charge-offs for 1999 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 $147,784,819 at December 31,
1998 as compared to $137,044,813 at December 31, 1997, an increase of 7.8%,
and follows an increase of 9.4% between 1997 and 1996. The increase in total
deposits during 1998 and 1997 was primarily in time deposits. Time deposits
grew by $4,280,219 or 7.4% in 1998, and follows an increase of $6,824,615 or
13.3% in 1997. Time deposits of $100,000 or more decreased approximately
$1,689,000 at December 31, 1998 as compared to December 31, 1997. The
increase in time deposits was primarily the result of special promotions
offered by the subsidiary banks throughout 1998 and 1997. At December 31,
1998, noninterest bearing deposits comprised 10% of total deposits and
interest bearing deposits which include NOW, money market, savings and time
deposits comprised 90% of total deposits. There were no changes in the
deposit mix from December 31, 1997 to December 31, 1998.
Repurchase Agreements
Repurchase agreements represent short-term borrowings, usually overnight to 30
days. Repurchase agreements were $6,994,024 at December 31, 1998, an increase
of $2,919,028 in 1998 as compared to 1997. The increase in repurchase
agreements in 1998 as compared to 1997 was primarily due to an increase in
balances maintained by existing commercial customers combined with the
increase 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 9.2% in 1998 entirely from current
earnings after quarterly dividends, and an increase of .2% resulting from the
effect of the change in the net unrealized gain (loss) on securities available
for sale. The increase in stockholders' equity in 1998 follows an increase of
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. Stockholders' equity amounted
to 9.0% of total assets at the end of 1998 and 1997.
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 8, 1998, the Holding Company declared a four percent common stock
dividend to stockholders of record on October 1, 1998. As a result, 48,167
shares of common stock were issued on October 26, 1998. The Holding Company
declared a 50% common stock dividend on September 9, 1997 to stockholders of
record on October 1, 1997. Accordingly, 402,978 shares of common stock were
issued on October 27, 1997.
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
64
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 $(5,053,000), which indicates
the corporation's interest bearing liabilities are more than earning assets at
December 31, 1998. 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, 1998
(less (greater Non-
than) 3 3 - 12 1 - 3 than) 3 Interest
Months Months Years Years Bearing Total
------- ------- ------ ------- ------- -------
ASSETS:
Fed Funds Sold $ 4,092 $ $ $ $ $ 4,092
Investments 5,300 6,331 14,733 28,371 54,735
Loans 19,435 27,289 23,019 33,398 414 103,555
Other Assets 300 9,836 10,136
Allowance for Loan
and Lease Losses (1,123) (1,123)
-------- -------- ------- ------- ------- --------
TOTAL ASSETS: $ 29,127 $ 33,620 $37,752 $61,769 $ 9,127 $171,395
======== ======== ======= ======= ======= ========
NOW and Savings $ 2,553 $ 7,522 $10,897 $34,316 $ $ 55,288
MMDA 15,118 15,118
CD's < 100,000 8,518 20,939 11,485 11,037 51,979
CD's > 100,000 2,906 3,250 3,429 673 10,258
Demand Deposits 15,142 15,142
Other Liabilities 1,155 1,155
Repurchase Agreements 6,994 6,994
Stockholders' Equity 15,461 15,461
-------- -------- ------- ------- ------- --------
TOTAL LIABILITIES
AND CAPITAL: $36,089 $ 31,711 $25,811 $46,026 $31,758 $171,395
======= ======= ======= ======== ======= ========
GAP (6,962) 1,909 11,941 15,743 (22,631)
GAP/ Total Assets (4.06%) 1.11% 6.97% 9.19% (13.20%)
Cumulative GAP (6,962) (5,053) 6,888 22,631 0
Cumulative GAP/Total Assets (4.06%) (2.95%) 4.02% 13.20% 0.00%
The above analysis contains repricing and maturity assumptions and
estimates used by management.
---------------------------------------------------------------
15
65
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
$43,385,571 classified as available for sale at December 31, 1998. 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, 1998, Progressive Bank, N.A. and Progressive Bank, N.A.-
Buckhannon, had an available line of approximately $2,570,000 and $694,000,
respectively, without purchasing any additional capital stock from the FHLB.
As of December 31, 1998 and 1997, there were no borrowings outstanding
pursuant to these agreements.
At December 31, 1998 and December 31, 1997, the Holding Company had
outstanding loan commitments and unused lines of credit totaling $8,070,000
and $7,321,000, respectively. As of December 31, 1998, management placed a
high probability for required funding within one year of approximately
$4,958,000. Approximately $2,753,000 is principally unused home equity and
credit card lines on which management places a low probability for required
funding.
Year 2000 Readiness Disclosure
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 Awareness Phase
provided for the establishment of a Year 2000 committee and to develop an
overall strategy for the banks. The Assessment Phase included the
identification of all hardware, software, networks, automated teller machines,
mission critical systems and customer and vendor interdependencies affected by
Year 2000. The committee has identified software and hardware which will be
affected by the Year 2000 change. We have contacted our vendors and continue
to monitor their progress on a quarterly basis. Additionally, large
commercial customers have been assessed for Year 2000 risk and assigned a risk
rating. Customers with high risk ratings are being reviewed on a periodic
basis. Any new material commercial customers are evaluated for Year 2000
risk.
The Year 2000 Project Committee has identified the bank's mission critical
systems. The committee has established the following definition of Year 2000
compliance: A vendor or software system would be classified as Year 2000
compliant if certification from the vendor was received stating that the
product will correctly process, provide and/or receive date data for the Year
2000 and that the product performs accurately in a test conducted by the bank
with the product interfacing with all relevant systems. Internal testing is a
crucial part of the Plan. We have established our testing strategies,
methodology and have developed test scripts for our mission critical systems.
In order to facilitate testing, we have created a testing environment which
mirrors our production system. Testing of in-house applications, including
ACH processing, was completed during the third and fourth quarters of 1998.
Verification of the testing was completed by December 31, 1998. Based on our
Year 2000 definition, we have concluded that our mission critical hardware and
software systems are Year 2000 compliant.
The Company has also established a business resumption plan which will be
reviewed on a quarterly basis. 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
66
- -----------------------------------------------------------------------------
First West Virginia Bancorp, Inc.
Summarized Quarterly Financial Information
- -----------------------------------------------------------------------------
A summary of selected quarterly financial information follows:
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Total interest income $3,017,292 $3,062,636 $3,148,133 $3,224,052
Total interest expense 1,276,939 1,325,792 1,363,263 1,357,847
Net interest income 1,740,353 1,736,844 1,784,870 1,866,205
Provision for loan
losses 46,500 56,500 76,500 76,500
Investment Securities
Gain (1,608) -- 2,786 --
Total other income 191,504 183,293 215,373 195,010
Total other expenses 1,109,594 1,125,921 1,172,069 1,266,218
Income before income
taxes 774,155 737,716 754,460 718,497
Net income 519,740 501,192 515,715 496,378
Net income per share (1) .41 .40 .41 .40
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) .38 .38 .40 .38
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) .30 .32 .35 .34
(1) Adjusted for the 4 percent common stock dividend to stockholders of
record as of October 1, 1998; the 3 for 2 stock split in the effect of
a 50% stock dividend to stockholders of record as of October 1, 1997;
and the 4 percent common stock dividend to stockholders of record as
of December 2, 1996.
---------------------------------------------------------------
17
67
- -------------------------------------------------------------------------
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
68
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, 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, 1998, in conformity with
generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wheeling, West Virginia
January 13, 1999
S.R. Snodgrass, A.C.
980 National Road Wheeling, WV 26003-6400 Phone: 304-233-5030 Facsimile:
304-233-3062
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19
69
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
------------ ------------
ASSETS
Cash and due from banks $ 4,720,682 $ 4,718,516
Due from banks - interest bearing 299,430 96,967
------------ ------------
Total cash and cash equivalents 5,020,112 4,815,483
Federal funds sold 4,092,000 6,932,000
Investment securities:
Available for sale (at fair value) 43,385,571 40,665,808
Held to maturity (fair value of $11,424,327
and $4,837,574 respectively) 11,349,829 4,778,146
Loans, net of unearned income 103,555,319 95,373,653
Less allowance for loan losses (1,122,912) (1,217,763)
------------ ------------
Net loans 102,432,407 94,155,890
Premises and equipment, net 3,204,730 3,085,087
Accrued income receivable 1,242,606 1,075,701
Other assets 667,824 634,468
------------ ------------
Total assets $171,395,079 $156,142,583
============ ============
LIABILITIES
Noninterest bearing deposits:
Demand $ 15,141,249 $ 14,142,125
Interest bearing deposits:
Demand 25,130,312 22,908,421
Savings 45,275,810 42,037,038
Time 62,237,448 57,957,229
------------ ------------
Total deposits 147,784,819 137,044,813
Repurchase agreements 6,994,024 4,074,996
Accrued interest on deposits 472,097 432,870
Other liabilities 683,201 460,909
------------ ------------
Total liabilities 155,934,141 142,013,588
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - 2,000,000 shares authorized
at $5 par value:
1,257,252 shares issued at December 31, 1998 and
1,209,085 shares issued at December 31, 1997 6,286,260 6,045,425
Surplus 4,739,381 3,764,000
Retained earnings 4,275,249 4,196,076
Accumulated other comprehensive income 160,048 123,494
------------ ------------
Total stockholders' equity 15,460,938 14,128,995
------------ ------------
Total liabilities and stockholders' equity $171,395,079 $156,142,583
============ ============
The accompanying notes are an integral part of the financial statements.
---------------------------------------------------------------
20
70
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans
and lease financing:
Taxable $ 8,873,747 $ 7,791,705 $ 6,736,781
Tax-exempt 204,726 135,969 105,192
Investment securities:
Taxable 2,494,614 2,905,180 2,581,467
Tax-exempt 382,111 264,112 247,114
Dividends 28,482 22,862 20,414
Other interest income 138,252 29,843 80,742
Interest on federal funds sold 330,181 357,138 295,348
---------- ---------- ----------
Total interest income 12,452,113 11,506,809 10,067,058
---------- ---------- ----------
INTEREST EXPENSE
Deposits 5,096,756 4,555,542 3,798,076
Other borrowings 227,085 188,905 127,333
---------- ---------- ----------
Total interest expense 5,323,841 4,744,447 3,925,409
---------- ---------- ----------
Net interest income 7,128,272 6,762,362 6,141,649
PROVISION FOR POSSIBLE LOAN LOSSES 256,000 130,500 70,600
---------- ---------- ----------
Net interest income after provision
for possible loan losses 6,872,272 6,631,862 6,071,049
NONINTEREST INCOME
Service charges and other fees 490,834 415,638 365,446
Securities gains (losses) 1,178 (1,291) (711)
Other operating income 294,346 224,584 203,029
---------- ---------- ----------
Total noninterest income 786,358 638,931 567,764
---------- ---------- ----------
NONINTEREST EXPENSE
Salary and employee benefits 2,414,862 2,280,673 2,119,124
Net occupancy expense of premises 796,133 789,128 764,213
Other operating expenses 1,462,807 1,307,568 1,298,329
---------- ---------- ----------
Total noninterest expense 4,673,802 4,377,369 4,181,666
---------- ---------- ----------
Income before income taxes 2,984,828 2,893,424 2,457,147
INCOME TAXES 951,803 962,856 813,153
---------- ---------- ----------
Net income $ 2,033,025 $ 1,930,568 $ 1,643,994
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,257,252 1,257,252 1,257,252
========== ========== ==========
EARNINGS PER COMMON SHARE $1.62 $1.54 $1.31
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
---------------------------------------------------------------
21
71
First West Virginia Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Compre- Compre-
------------------------- Retained hensive hensive
Shares Stock Surplus Earnings Income Income Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $ 775,268 $ 3,876,340 $ 3,166,340 $ 4,621,049 $ 45,478 $11,709,207
Comprehensive income
Net income - - - 1,643,994 - $ 1,643,994 1,643,994
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - (126,038) (126,038) (126,038)
-----------
Comprehensive income $ 1,517,956
===========
Cash dividend ($.46 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) - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 806,107 4,030,535 3,764,000 4,935,303 (80,560) 12,649,278
Comprehensive income
Net income - - - 1,930,568 - $ 1,930,568 1,930,568
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - 204,054 204,054 204,054
-----------
Comprehensive income $ 2,134,622
===========
Cash dividend ($.52 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 fair market value 402,978 2,014,890 - (2,014,890) - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 1,209,085 6,045,425 3,764,000 4,196,076 123,494 14,128,995
Comprehensive income
Net income - - - 2,033,025 - $ 2,033,025 2,033,025
Other comprehensive income,
net of tax:
Unrealized gains on securities
net of reclassification
adjustment (see disclosure) - - - - 36,554 36,554 36,554
-----------
Comprehensive income $ 2,069,579
===========
Cash dividend ($.58 per share) - - - (732,677) - (732,667)
Cash paid in lieu of fractional
shares on stock dividend - - - (4,959) - (4,959)
4% common stock dividend
at fair market value 48,167 240,835 975,381 (1,216,216) - -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 $ 1,257,252 $ 6,286,260 $ 4,739,381 $ 4,275,249 $ 160,048 $15,460,938
=========== =========== =========== =========== =========== ===========
1998 1997 1996
-------- -------- --------
Disclosure of reclassification amount
Unrealized holding gains (losses)
arising during period $ 37,296 $203,240 $(126,486)
Less reclassification adjustment for
gains (losses) included in net income 742 (814) (448)
-------- -------- ---------
Net unrealized gains (losses)
on securities $ 36,554 $204,054 $(126,038)
======== ======== =========
The accompanying notes are an integral part of the financial statements.
---------------------------------------------------------------
22
72
First West Virginia Bancorp Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,033,025 $ 1,930,568 $ 1,643,994
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 256,000 130,500 70,600
Depreciation and amortization 377,721 370,743 382,789
Loss on disposal of equipment - - 776
Amortization of investment
securities, net (83,194) (47,749) (10,963)
Investment security losses (gains) (1,178) 1,291 711
Increase in interest receivable (166,905) (127,675) (24,703)
Increase in interest payable 39,227 47,581 70,682
Other, net 163,445 (85,201) 78,879
----------- ----------- -----------
Net cash provided by
operating activities 2,618,141 2,220,058 2,212,765
----------- ----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease in
federal funds sold 2,840,000 (1,471,000) (3,183,000)
Net increase in loans,
net of charge-offs (8,554,313) (15,042,430) (8,494,283)
Proceeds from sale of securities
available for sale 6,543 1,487,344 1,250,868
Proceeds from maturities of
securities available for sale 34,648,171 23,350,000 21,615,000
Proceeds from maturities of
securities held to maturity 976,000 2,010,000 235,000
Principal collected on mortgage-
backed securities 2,962,199 944,930 415,482
Purchases of securities available
for sale (40,194,992) (21,194,040) (27,341,216)
Purchases of securities held
to maturity (7,546,999) (1,233,644) (806,587)
Recoveries on loans previously
charged-off 21,796 12,418 24,889
Purchases of premises and
equipment (493,316) (202,358) (499,219)
----------- ------------ -----------
Net cash used in investing
activities (15,334,911) (11,338,780) (16,783,066)
----------- ----------- ------------
FINANCING ACTIVITIES
Net increase in deposits 10,740,006 11,773,745 10,375,915
Dividends paid (737,635) (654,905) (577,885)
Increase (decrease) in short-
term borrowings 2,919,028 (1,855,695) 5,181,467
----------- ----------- -----------
Net cash provided by
financing activities 12,921,399 9,263,145 14,979,497
----------- ----------- -----------
INCREASE IN CASH AND
CASH EQUIVALENTS 204,629 144,423 409,196
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 4,815,483 4,671,060 4,261,864
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 5,020,112 $ 4,815,483 $ 4,671,060
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
---------------------------------------------------------------
23
73
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First West Virginia Bancorp, Inc.
(the "Corporation") and its subsidiaries conform with generally accepted
accounting principles and with general practices within the banking industry.
The following is a summary of the significant policies:
Nature of Operations
- --------------------
First West Virginia Bancorp, Inc. provides a variety of banking services to
individuals and businesses through the branch network of its two affiliate
banks (the "Banks"). The Banks operate seven full service branches located in
Wheeling (2), Wellsburg, Moundsville, Buckhannon, and Weston, West Virginia
and Bellaire, Ohio. Primary deposit products consist of checking accounts,
savings accounts, and certificates of deposit. Primary lending products
consist of commercial and residential real estate loans, consumer loans, and
business loans.
Principles of Consolidation
- ----------------------------
The consolidated financial statements of the Corporation include the financial
statements of the parent and its wholly-owned subsidiaries, Progressive Bank,
N.A. and Progressive Bank, N.A.-Buckhannon. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Investment Securities
- ----------------------
Investment securities are classified based on management's intention on the
date of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held to maturity and reported at amortized
cost. The Corporation uses the interest method to amortize premiums and
accrete discounts. All other securities are classified as available for sale
and carried at fair value, with net unrealized gains and losses included in
stockholders' equity on an after-tax basis. The Corporation does not
currently conduct short term purchase and sale transactions of investment
securities which would be classified as trading securities.
Gains or losses on dispositions of investment securities are computed by using
the adjusted cost of the specific securities sold. Securities gains or losses
are shown separately as non-interest income in the consolidated statements of
income.
Interest and Fees on Loans
- --------------------------
Interest income on loans is accrued based on the principal outstanding. It is
the Corporation's policy to discontinue the accrual of interest when either
the principal or interest is past due 90 days or more, unless the loan is both
well secured and in the process of collection.
The Corporation accounts for impaired loans in accordance with the provisions
of FAS No. 114 and No. 118, "Accounting for Creditors for Impairment of a
Loan." It is the Corporation's policy not to recognize interest income on
specific impaired loans unless the likelihood of future loss is remote.
Interest payments received on such loans are applied as a reduction of the
loan principal balance. Since the adoption of FAS 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
---------------------------------------------------------------
24
74
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 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. On September 8, 1998, the Corporation declared a 4% stock dividend
to stockholders of record on October 1, 1998. 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 1998, $4,000 for 1997, and $31,300 for 1996.
Reclassifications
- ------------------
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
---------------------------------------------------------------
25
75
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2 - INVESTMENT SECURITIES
The estimated market values of investment securities are as follows at
December 31, 1998 and 1997:
December 31, 1998
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities held to maturity: (Expressed in Thousands)
----------------------------
Obligations of states and political subdivisions $ 11,350 $ 108 $ (34) $ 11,424
--------- --------- -------- ---------
Total held to maturity 11,350 108 (34) 11,424
--------- --------- -------- ---------
Securities available for sale:
------------------------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies 34,942 219 (54) 35,107
Obligations of states and political subdivisions 504 12 - 516
Corporate debt securities 453 4 (2) 455
Mortgage-backed securities 6,461 51 (9) 6,503
Equity securities 772 49 (17) 804
--------- --------- -------- ---------
Total available for sale 43,132 335 (82) 43,385
--------- --------- -------- ---------
Total $ 54,482 $ 443 $ (116) $ 54,809
========= ========= ======== =========
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
========= ========== ========= =========
---------------------------------------------------------------
26
76
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities
at December 31, 1998, 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 $ 950 $ 956 $ 6,103 $ 6,124
Due after one year through
five years 5,099 5,143 18,814 18,921
Due after five years
through ten years 5,121 5,151 10,981 11,033
Due after ten years 180 174 -- --
----------- --------- ---------- -----------
11,350 11,424 35,898 36,078
Mortgage-backed securities -- -- 6,461 6,503
Equity securities -- -- 773 804
----------- --------- ---------- -----------
Total $ 11,350 $ 11,424 $ 43,132 $ 43,385
=========== ========== ========== ===========
Proceeds from sales of securities available for sale during the years
ended December 31, 1998, 1997, and 1996, were $5,366, $1,487,344, and
$1,250,868, respectively. Gross gains of $2,786 and gross losses of
$1,608 in 1998; gross gains of $2,772 and gross losses of $4,063 in 1997;
and gross gains of $425 and gross losses of $1,136 in 1996 were realized
on those sales. Assets carried at $24,687,000 and $18,079,000 at
December 31, 1998 and 1997, respectively, were pledged to secure United
States Government and other public funds and for other purposes as
required or permitted by law.
NOTE 3 - LOANS AND LEASES
Loans outstanding at December 31, 1998 and 1997, are as follows:
(Expressed in Thousands)
1998 1997
------------ ------------
Real estate-construction $ 41 $ 334
Real estate-farmland 133 122
Real estate-residential 35,253 32,610
Real estate-secured by non-farm, non-residential 25,866 23,925
Commercial and industrial loans 13,261 12,377
Installment and other loans to individuals 24,722 22,487
Non-rated industrial development obligations 3,563 3,517
Direct financing leases -- 70
Other loans 819 40
------------ ------------
Total 103,658 95,482
Less unearned interest and deferred fees 103 108
------------ ------------
Net loans $ 103,555 $ 95,374
============ ============
---------------------------------------------------------------
27
77
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 3 - LOANS AND LEASES (CONTINUED)
The elements of the investment in direct financing leases at December 31
are as follows:
(Expressed in Thousands)
1998 1997
---------- ----------
Rentals receivable $ -- $ 24
Estimated residual value
of leased assets -- 47
---------- ----------
Subtotal -- 71
Unearned income -- (1)
---------- ----------
Total net investment in
direct financing leases $ -- $ 70
========== ==========
The Corporation had no loans at December 31, 1998 and 1997, that were
specifically classified as impaired. Non-accrual loans amounted to $396,000
and $540,000 at December 31, 1998, and 1997, respectively. The amount of
interest income that would have been recognized had the loans performed in
accordance with their original terms was $33,000 and $34,600 for 1998 and
1997, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
December 31,
1998 1997 1996
---------- ---------- ----------
Balance, beginning of year $ 1,217,763 $ 1,160,302 $ 1,148,692
Additions charged to
operating expense 256,000 130,500 70,600
Recoveries 21,796 12,418 24,889
---------- ---------- ----------
Total 1,495,559 1,303,220 1,244,181
Less loans charged-off 372,647 85,457 83,879
---------- ---------- ----------
Balance, end of year $ 1,122,912 $ 1,217,763 $ 1,160,302
========== ========== ==========
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
1998 1997 Years
---------- ---------- ----------
Land $ 1,116,585 $ 794,116
Land improvements 231,554 223,004 20
Leasehold improvements 396,898 396,898 25
Buildings 2,938,842 2,909,684 20 - 50
Furniture, fixtures & equipment 2,199,750 2,140,792 3 - 20
---------- ----------
Total 6,883,629 6,464,494
Less accumulated depreciation 3,678,899 3,379,407
---------- ----------
Premises and
equipment, net $ 3,204,730 $ 3,085,087
========== ==========
Charges to operations for depreciation approximated $373,673, $366,695, and
$351,511 for 1998, 1997, and 1996, respectively.
---------------------------------------------------------------
28
78
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 6 - DEPOSITS
The composition of the banks' deposits at December 31 follows:
(Expressed in Thousands)
1998
-------------------------------------------------
Demand
------------------------
Noninterest Interest
Bearing Bearing Savings Time
----------- --------- -------- ---------
Individuals, partnerships and corporations $ 13,876 $ 22,213 $ 43,717 $ 60,150
United States Government 65 - - -
States and political subdivisions 249 2,917 1,559 1,872
Commercial banks - - - -
Other depository institutions 119 - - 216
Certified and official checks 832 - - -
-------- -------- -------- --------
Total $ 15,141 $ 25,130 $ 45,276 $ 62,238
======== ======== ======== ========
(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
=========== ========= ======== =========
Time deposits include certificates of deposit issued in denominations
of $100,000 or more which amounted to $10,258,000 and $11,947,000 at
December 31, 1998 and 1997, respectively.
A maturity distribution of time certificates of deposit of $100,000 or
more at December 31, 1998, follows:
Due in three months or less $ 2,906,000
Due after three months through six months 1,173,000
Due after six months through twelve months 2,077,000
Due after one year through five years 4,102,000
------------
Total $ 10,258,000
============
NOTE 7 - INCOME TAX
The provisions for income taxes at December 31 consist of:
1998 1997 1996
----------- ----------- ----------
Currently payable:
Federal $ 849,935 $ 928,070 $ 734,047
State 178,101 154,279 112,528
Deferred:
Federal (65,899) (103,896) (29,825)
State (10,334) (15,597) (3,597)
----------- ----------- ----------
Income tax expense $ 951,803 $ 962,856 $ 813,153
=========== =========== ==========
---------------------------------------------------------------
29
79
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 7 - INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax asset
at December 31:
1998 1997
------------ ------------
Allowance for loan losses $ 280,709 $ 293,441
Deferred loan fees 34,896 36,863
Accrued interest on non-performing loans 39,432 33,825
Deferred compensation 98,815 64,698
Deferred directors fees 21,802 19,885
Depreciation due to purchase accounting adjustments (27,832) (61,584)
Deferred state income tax (22,291) (2,887)
Other, net (4,654) (17,188)
------------ ------------
Total deferred tax asset - federal 420,877 367,053
Total deferred tax asset - state 65,561 50,553
------------ ------------
486,438 417,606
Deferred tax assets (liabilities) arising from market
adjustments of securities available for sale
Federal (82,449) (63,618)
State (11,427) (8,816)
------------ ------------
Total deferred tax assets $ 392,562 $ 345,172
============ ============
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:
1998 1997 1996
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
---------- ----- ---------- ----- ---------- -----
Computed tax at statutory
Federal rate $1,014,842 34.0 % $ 983,764 34.0 % $ 835,430 34.0 %
Plus state income taxes net
Of federal tax benefits 110,726 3.7 91,530 3.2 71,894 2.9
---------- ----- ---------- ----- ---------- -----
1,125,568 37.7 1,075,294 37.2 907,324 36.9
Increase (decrease) in taxes
resulting from:
Tax exempt income (199,870) (6.6) (137,389) (4.7) (106,073) (4.3)
Nondeductible interest expense 25,260 0.8 16,602 0.6 6,825 0.3
Nondeductible goodwill 1,376 0.0 1,376 0.0 7,696 0.3
Others - net (531) 0.0 6,973 0.2 (2,619) (0.1)
---------- ----- ---------- ----- ---------- -----
Actual tax expense $ 951,803 31.9 % $ 962,856 33.3 % $ 813,153 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 $143,100, $127,600, and $116,300
for the years ended December 31, 1998, 1997, and 1996, respectively.
In 1998, the Corporation amended the profit-sharing plan to add a 401(k)
feature. The Corporation matches a portion of the employee's contribution up
to 4% of their salary. The expense related to the 401(k) plan was $15,119 in
1998.
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.
---------------------------------------------------------------
30
80
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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:
1998 1997 1996
----------- ----------- -----------
Balance at end of year $ 6,994,024 $ 4,074,996 $ 5,930,691
Average balance during
the year 6,598,665 5,117,789 3,703,803
Maximum month-end balance 9,218,303 5,922,489 5,930,691
Weighted-average rate
during the year 3.44% 3.69% 3.42%
Rate at December 31 2.31% 3.22% 4.07%
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:
1998 1997
------------ ------------
Commitments to extend credit $ 7,978,000 $ 7,273,000
Standby letters of credit 92,000 48,000
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 1999. 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, 1998, the subsidiary Banks had unused lines of credit
available with the FHLB in the aggregate amount of $3,264,000. There were no
outstanding borrowings at December 31, 1998.
NOTE 11 - RELATED PARTY TRANSACTIONS
Directors and officers of the corporation and its subsidiaries, and their
associates, were customers of, and had other transactions with the subsidiary
Banks in the normal course of business. All loans and commitments included in
such transactions were made on substantially the same terms, including
interest and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than the normal risk
of collectibility. Such loans totaled $4,320,419 at December 31, 1998, and
$3,257,242 at December 31, 1997.
---------------------------------------------------------------
31
81
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The following is an analysis of loan activity to directors, executive
officers, and associates of the Corporation and its subsidiaries:
December 31,
1998 1997
------------ ------------
Balance, January 1 $ 3,257,242 $ 4,720,986
New loans during the period 2,766,412 671,023
Repayments during the period (1,703,235) (2,134,767)
------------ ------------
Ending balance $ 4,320,419 $ 3,257,242
============ ============
NOTE 12 - CONCENTRATIONS OF CREDIT RISK
Most of the affiliate Banks' loans and commitments have been granted to
customers in the Banks' primary market areas of Northern and Central West
Virginia, Eastern Ohio, and Southwestern Pennsylvania. In the normal course
of business, however, the Banks have purchased participations and originated
loans outside of their primary market areas. The aggregate loan balances
outstanding in any one geographic area, other than the Banks' primary lending
areas, do not exceed 10% of total loans. No specific industry concentrations
exceeded 10% of total exposure. The concentrations of credit by type of loan
are set forth in Note 3.
NOTE 13 - LEASES
At December 31, 1998, 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, 1998, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year, are
as follows:
December 31, 1999 $ 81,750
December 31, 2000 62,000
December 31, 2001 42,000
December 31, 2002 38,000
December 31, 2003 38,000
Thereafter 312,500
Rental expense under operating leases approximated $103,000 in 1998; $107,000
in 1997; and $104,000 in 1996.
NOTE 14 - OTHER OPERATING EXPENSES
Other operating expenses at December 31 included the following:
1998 1997 1996
---------- ---------- ----------
Directors fees $ 121,800 $ 132,200 $ 122,300
Stationery and supplies 161,921 135,751 143,710
Regulatory assessment and
deposit insurance 75,381 80,152 67,592
Advertising 107,511 101,816 104,568
Postage and transportation 131,445 118,915 118,247
Other taxes 135,831 116,892 89,509
Service Expense 161,715 131,284 106,511
Other 567,203 490,558 545,892
---------- ---------- ----------
Total $1,462,807 $1,307,568 $1,298,329
========== ========== ==========
---------------------------------------------------------------
32
82
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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, 1998 and 1997, were $835,000 and
$709,000, 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 1999, without approval of the
Comptroller of the Currency, of approximately $2,500,000, plus an additional
amount equal to the Bank's net profit for 1999 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 1998, 1997, and 1996, were $5,284,614,
$4,696,866, and $3,854,727, respectively. Cash payments for income taxes for
1998, 1997, and 1996 were $1,055,685, $1,081,701, and $872,395, respectively.
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, 1998,
that the Banks meet all capital adequacy requirements to which they are
subject.
As of December 31, 1998, 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.
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ---------------- ----------------
(Amounts Expressed in Thousands) Amount Ratio Amount Ratio Amount Ratio
--------- ----- -------- ----- -------- -----
As of December 31, 1998:
Total Capital $ 16,031 15.0% $ 8,557 8.0% $ 10,696 10.0%
(to Risk Weighted Assets)
Tier I Capital $ 14,908 13.9% $ 4,279 4.0% $ 6,418 6.0%
(to Risk Weighted Assets)
Tier I Capital $ 14,908 8.7% $ 5,121 3.0% $ 8,534 5.0%
(to Average Assets)
---------------------------------------------------------------
33
83
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 18 - REGULATORY MATTERS (CONTINUED)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ---------------- ----------------
(Amounts Expressed in Thousands) Amount Ratio Amount Ratio Amount Ratio
--------- ----- -------- ----- -------- -----
As of December 31, 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)
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 isconsidered 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.
---------------------------------------------------------------
34
84
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
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)
1998 1997
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial assets:
Cash and short-term
investments $ 9,112 $ 9,112 $ 11,747 $ 11,747
Investment securities 54,735 54,810 45,444 45,503
Loans (1) 102,432 105,871 94,086 94,836
Financial liabilities:
Deposits 147,785 149,260 137,045 137,371
Short-term borrowings 6,994 6,994 4,075 4,075
(1) Excludes net leases with a carrying amount of $-0- and $70,000 at
December 31, 1998 and 1997, respectively.
NOTE 20 - COMPREHENSIVE INCOME
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income in a full set of financial statements. The Corporation
adopted this statement on January 1, 1998, and has reclassified information in
the 1997 and 1996 financial statements to reflect application of the
provisions of this statement. Unrealized gains and losses on securities
available for sale are the only components of other comprehensive income that
apply to the Corporation.
1998 1997 1996
------- -------- ---------
Before-tax amount $57,995 $323,741 $(199,965)
Tax effect (21,441) (119,687) 73,927
------- -------- ---------
Net-of-tax amount $36,554 $204,054 $(126,038)
======= ======== =========
---------------------------------------------------------------
35
85
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 21 - 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,
1998 1997
----------- -----------
ASSETS
Cash $ 299,717 $ 281,141
Investment in common stock - available
for sale (at market value) 226,281 97,162
Investment in subsidiary banks 15,026,356 13,693,981
Land and buildings, net 120,090 188,280
Other assets 109,292 84,088
----------- -----------
Total assets $15,781,736 $14,344,652
=========== ===========
LIABILITIES
Accrued expenses $ 30,165 $ 25,370
Deferred compensation 290,633 190,287
----------- -----------
Total liabilities 320,798 215,657
STOCKHOLDERS' EQUITY 15,460,938 14,128,995
----------- -----------
Total liabilities and
stockholders' equity $15,781,736 $14,344,652
=========== ===========
STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
----------- ----------- -----------
INCOME
Dividends from
subsidiary banks $ 769,600 $ 733,600 $ 585,400
Rental income 40,000 52,000 48,258
Gain on sale of investments 1,178 - -
Other income 128,220 100,507 67,238
----------- ----------- -----------
Total income 938,998 886,107 700,896
----------- ----------- -----------
EXPENSES
Salary and employee
benefits 100,346 111,668 78,619
Interest expense 2,400 2,190 1,995
Occupancy expense 11,399 11,399 11,400
Other expenses 129,469 138,614 105,949
----------- ----------- -----------
Total expenses 243,614 263,871 197,963
----------- ----------- -----------
Income before income
taxes and equity in
undistributed income
of subsidiaries 695,384 622,236 502,933
INCOME TAX BENEFIT (EXPENSE) 30,399 45,757 29,859
EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 1,307,242 1,262,575 1,111,202
----------- ----------- -----------
Net income $ 2,033,025 $ 1,930,568 $ 1,643,994
=========== =========== ===========
---------------------------------------------------------------
36
86
First West Virginia Bancorp, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
NOTE 21 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997 1996
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 2,033,025 $ 1,930,568 $ 1,643,994
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 15,447 15,447 15,448
Change in deferred
tax benefit (37,952) (42,842) (29,213)
Undistributed earnings
of affiliates (1,307,242) (1,262,575) (1,111,202)
Changes in operating
assets and liabilities:
Other assets 2,000 4,266 (2,291)
Deferred compensation 100,346 109,607 78,619
Other liabilities 4,795 (7,447) 4,835
Gain on sale of securities (1,178) - -
----------- ----------- -----------
Net cash provided by
operating activities 809,241 747,024 600,190
----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of
securities 6,543 - -
Proceeds from sale of land 56,791 - -
Purchase of investment
securities (116,364) (78,619) -
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (53,030) (78,619) -
----------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid (737,635) (654,905) (577,885)
----------- ----------- -----------
Net cash used in
financing activities (737,635) (654,905) (577,885)
----------- ----------- -----------
INCREASE IN CASH
AND CASH EQUIVALENTS 18,576 13,500 22,305
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 281,141 267,641 245,336
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 299,717 $ 281,141 $ 267,641
=========== =========== ===========
Supplemental disclosures:
Interest expense note: Cash payments for interest were $2,400, $2,190, and
$1,995 in 1998, 1997, and 1996, respectively.
Income taxes note: The parent company made income tax payments of
$10,500,$4,200, and $ 1,000 in 1998, 1997, and 1996, respectively.
---------------------------------------------------------------
37
87
-----------------------------------------------------
First West Virginia Bancorp, Inc.
DIRECTORS
George F. Beneke. . . . . . . . . . . . Chairman Emeritus,
First West Virginia Bancorp, Inc.
Retired Attorney at Law
President, The Beneke Corporation
Sylvan J. Dlesk. . . . . . . . . . . . President, Dlesk, Inc.
Ben R. Honecker. . . . . . . . . . . . Attorney at Law
Laura G. Inman. . . . . . . . . . . . . Chairman,
First West Virginia Bancorp, Inc.
Senior Vice President,
Progressive Bank, N.A.
James C. Inman, Jr. . . . . . . . . . .Retired Bank Executive
R. Clark Morton. . . . . . . . . . . . .Attorney at Law
Karl W. Neumann. . . . . . . . . . . . .Chairman of the Board,
Progressive Bank, N.A.
Retired Insurance Executive
Thomas A. Noice. . . . . . . . . . . . .Retired Bank Executive
William G. Petroplus. . . . . . . . . .Attorney at Law
Ronald L. Solomon. . . . . . . Vice Chairman, President and
Chief Executive Officer,
First West Virginia Bancorp, Inc.
Vice Chairman,
Chief Executive Officer,
Progressive Bank, N.A.
Vice Chairman,
Progressive Bank, N.A. Buckhannon
OFFICERS
George F. Beneke. . . . . . . . . . . . Chairman Emeritus
Laura G. Inman. . . . . . . . . . . . . Chairman of the Board
Ronald L. Solomon. . . . . . . . . . . .Vice Chairman, President and
Chief Executive Officer
Charles K. Graham. . . . . . . . . . . .Executive Vice President
Beverly A. Barker. . . . . . . . . . . .Senior Vice President, Treasurer
Francie P. Reppy. . . . . . . . . . . . Controller
Connie R. Tenney. . . . . . . . . . . . Vice President
David E. Yaeger. . . . . . . . . . . . .Vice President
Stephanie A. LaFlam. . . . . . . . . . Secretary
---------------------------------------------------------------
3
88
-------------------------------------------------------
SUBSIDIARY
Progressive Bank N.A.
Wheeling, WV 26003
DIRECTORS OFFICERS
George F. Beneke James C. Inman, Jr. Karl W. Neumann, Chairman
of the Board
Dr. Clyde D. Campbell Laura G. Inman Ronald L. Solomon, Vice Chairman
& Chief Executive Officer
Robert R. Cicogna H. Dennis Long Charles K. Graham, President
Gary P. DeVendra R. Clark Morton Beverly A. Barker, Executive
Vice President/Cashier
Sylvan J. Dlesk Karl W. Neumann Laura G. Inman, Senior
Vice President
Charles K. Graham William G. Petroplus David E. Yaeger,
Senior Vice President
C. Gary Hill Thomas L. Sable Francie P. Reppy, Controller
Ben R. Honecker Ronald L. Solomon Gary S. Martin, Vice
President/Marketing Coordinator
Brad D. Winwood, Vice President
Stephanie A. LaFlam,
Executive Secretary
EMERITUS DIRECTORS 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
Harold O. Thomas, Senior Business
Development Officer
Bryan S. Ramsey,Business
Development/Loan Officer
Mitzi K. Mattern, Credit Card
Manager/Office Manager Wellsburg
Lisa M. 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 Debra A. Hamner, Office Manager
Weston
---------------------------------------------------------------
39
89
Progressive Bank N.A. - Wheeling
(Photograph) (Photograph)
Wellsburg Office Bellaire 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
---------------------------------------------------------------
40
90
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
13, 1999, 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, 1998, may
obtain a copy of the Corporation's 1998 Form 10-K Report (to be filed with the
Securities and Exchange Commission before March 31, 1999) by writing to Ronald
L. Solomon, President, First West Virginia Bancorp, Inc., 875 National Road,
Wheeling, WV 26003
---------------------------------------------------------------
41