EXHIBIT 13
<PAGE>
[LOGO] Sistersville
======================
Bancorp, Inc.
726 WELLS STREET, P.O. BOX 187
SISTERSVILLE, WV 26175
304-652-3671
Report to Shareholders:
I am pleased to provide to you the Sistersville Bancorp, Inc. (the "Company")
2000 Annual Report. Our preparations for the Year 2000 date change proved to be
successful, as the Company and its subsidiary, First Federal Savings Bank (the
"Bank"), enjoyed a smooth transition into the new year.
In June of this year the Company will celebrate its three year anniversary as a
public company. The book value of our stock has been increased significantly
since our initial public offering due principally to Company stock repurchases.
Your board of directors increased dividends for the third straight year, and
will continue to work to provide you value on your investment in Sistersville
Bancorp. The public sector's desire for the stock of financial institutions has
proven to be lukewarm over the past year, due mainly to the public's appetite
for technology stocks. Recently, however, there have been signs that this trend
has slowed, and financial institution stocks are once again beginning to be
viewed as favorable investments.
I am pleased to report that First Federal Savings Bank opened its first branch
office in May. The branch is located in a new shopping center in Parkersburg,
West Virginia. This is a full service office located in a growing area. Although
it will take a few years for the branch to positively impact earnings, it will
provide an expanded market area for growth, followed by increased earnings in
the future.
I look forward to the challenges of enhancing the value of the Company during
the upcoming year. I commend the dedication and efforts of our employees and
directors, and express my appreciation for the continued support of our
customers and shareholders.
Sincerely,
/s/Stanley M. Kiser
Stanley M. Kiser
President
<PAGE>
SISTERSVILLE BANCORP, INC.
Corporate Profile
Sistersville Bancorp, Inc. (the "Company") is a Delaware corporation organized
in March, 1997, at the direction of First Federal Savings and Loan Association
of Sistersville (the "Association") to acquire all of the capital stock that the
Association issued in its conversion from the mutual to stock form of ownership
(the "Conversion"). On June 25, 1997, the Conversion was completed and the
Association became a wholly owned subsidiary of the Company and changed its name
to First Federal Savings Bank (the "Bank"). The Company is a unitary savings and
loan holding company which, under existing laws, generally is not restricted in
the types of business activities in which it may engage provided that the Bank
retains a specified amount of its assets in housing-related investments. The
Company conducts no significant business or operations of its own other than
holding all of the outstanding stock of the Bank and investing the Company's
portion of the net proceeds obtained in the Conversion.
The Bank is a federally chartered stock savings bank headquartered in
Sistersville, West Virginia. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits are federally insured by the Savings Association Insurance Fund
("SAIF"). The Bank is a member of and owns capital stock in the Federal Home
Loan Bank of Pittsburgh ("FHLB"), which is one of the 12 regional banks in the
FHLB system. Unless otherwise stated, the term "Bank" refers to both the Bank's
and Company's activities on a consolidated basis.
The Bank operates a traditional savings bank business, attracting deposit
accounts from the general public and using those deposits, together with other
funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Stock Market Information
The Company's common stock has been traded under the symbol "SVBC" since it
commenced trading in June, 1997. Price information with respect to the common
shares of SVBC is quoted on the OTC Bulletin Board. The following table sets
forth the high and low bid prices for the common shares of SVBC for each quarter
of fiscal year ended March 31, 2000 and 1999. Price quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may
not represent actual transactions.
Date High Low
---- ---- ---
Fiscal year ended March 31, 2000:
April 1, 1999 - June 30, 1999 $ 12.50 $ 11.25
July 1, 1999 - September 30, 1999 11.38 11.00
October 1, 1999 - December 31, 1999 11.00 10.12
January 1, 2000 - March 31, 2000 10.25 9.00
Fiscal year ended March 31, 1999:
April 1, 1998 - June 30, 1998 $ 16.00 $ 15.00
July 1, 1998 - September 30, 1998 16.50 13.00
October 1, 1998 - December 31, 1998 13.50 12.75
January 1, 1999 - March 31, 1999 13.38 12.38
-2-
<PAGE>
SVBC declared a semi-annual dividend of $.17 per share in June, 1999. A
semi-annual dividend per share of $.18 was also declared in December, 1999. The
number of shareholders of record of common stock as of the record date of June
2, 2000, was approximately 200. This does not reflect the number of persons or
entities who held stock in nominee or "street" name through various brokerage
firms. At June 2, 2000, there were 538,739 shares of common stock outstanding.
The Company's ability to pay dividends to stockholders is primarily dependent
upon income earned on investments and the dividends it receives from the Bank.
The Bank may not declare or pay a cash dividend on any of its stock if the
effect thereof would cause the Bank's regulatory capital to be reduced below (1)
the amount required for the liquidation account established in connection with
the Conversion, or (2) the regulatory capital requirements imposed by the OTS.
-3-
<PAGE>
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Company at the dates
and for the periods indicated.
Selected financial condition and other data:
At March 31,
-------------------------------
2000 1999
-------------- ------------
(Dollars in thousands)
Total assets $31,762 $32,188
Loans receivable, net 25,389 24,320
Mortgage-backed securities 559 809
Investments (1) 4,043 6,294
Cash - noninterest bearing 141 30
Savings deposits 21,054 20,848
Other borrowings 900 1,000
Stockholders' equity (2) 9,424 9,792
Number of full-service offices 1 1
(1) Includes FHLB stock, FHLMC stock and interest bearing deposits in other
financial institutions
(2) Includes accumulated other comprehensive income, net of applicable income
taxes
Summary of Operations
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
2000 1999
-------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Interest and dividend income $2,284 $2,364
Interest expense 932 896
-------------- --------------
Net interest income 1,352 1,468
-------------- --------------
Provision for loan losses 4 3
-------------- --------------
Net interest income after provision for loan losses 1,348 1,465
-------------- --------------
Non-interest income:
Service charges 33 32
Gain on sale of investments -- 168
Other income 2 2
-------------- --------------
Total other income 35 202
-------------- --------------
Non-interest expense:
Compensation and employee benefits 549 663
Occupancy and equipment 87 78
Deposit insurance premiums 10 13
Loss on sale of investments 23 --
Other general and administrative 313 301
-------------- --------------
Total non-interest expense 982 1,055
-------------- --------------
Income before income taxes 401 612
Provision for federal income taxes 135 223
-------------- --------------
Net income $266 $389
============== ==============
</TABLE>
-4-
<PAGE>
The table below sets forth certain performance ratios of the Company for the
periods indicated:
<TABLE>
<CAPTION>
For the Year Ended
March 31,
---------------------------------
2000 1999
------------- -----------
<S> <C> <C>
Capital Ratios:
Average equity to average assets ratio
(average equity divided by average total assets) 29.80% 32.25%
Equity to assets at period end 29.67% 30.42%
Performance Ratios:
Return on average equity (net income
divided by average equity) 2.78% 3.77%
Return on average assets (net income
divided by average total assets) 0.83% 1.22%
Net interest rate spread 3.20% 3.32%
Net yield on average interest earning assets 4.39% 4.71%
Average interest earning assets to
average interest-bearing liabilities 139.42% 148.43%
Net interest income after provision for possible
loan losses, to total other expenses 137.27% 138.86%
Non-interest expense to average assets 3.06% 3.30%
Efficiency Ratio (1) 71.00% 63.26%
Asset Quality Ratios:
Non-performing loans to total assets 0.00% 0.01%
Non-performing loans to total loans 0.00% 0.01%
Allowance for loan losses to total loans 0.69% 0.71%
Allowance for loan losses to total non-performing loans N/A 8600.00%
Allowance for loan losses to total non-performing assets (2) N/A 8600.00%
</TABLE>
--------------------------------------------------------------------------------
(1) Operating expenses as a percent of net interest income plus non interest
income.
(2) Non-performing assets include non-accrual loans, accruing loans more than
90 days past due and real estate acquired in settlement of loans.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results from operations consist primarily of interest income from
the investing of funds from proceeds generated by the sale of common stock and
accounting and legal expense incurred relating to public filings. The Bank's
results of operations are primarily dependent on its net interest income, which
is the difference between the interest income earned on its assets, primarily
loans and investments, and the interest expense on its liabilities, primarily
deposits. Net interest income may be affected significantly by general economic
and competitive conditions and policies of regulatory agencies, particularly
those with respect to market interest rates. The results of operations are also
influenced by the level of non-interest expense, such as employee benefits and
other income, loan-related fees, and fees on deposit-related services.
The Bank primarily originates fixed-rate loans with terms of up to 30 years and
attempts to maintain sufficient capital and other liquid assets to manage
interest rate risk.
ASSET/LIABILITY MANAGEMENT
The Bank's net interest income is sensitive to changes in interest rates, as the
rates paid on interest-bearing liabilities generally change faster than the
rates earned on interest-earning assets. As a result, net interest income will
frequently decline in periods of rising interest rates and increase in periods
of decreasing interest rates.
To mitigate the impact of changing interest rates on its net interest income,
the Bank manages its interest rate sensitivity and asset/liability products
through two committees of the Board, the Loan Committee and the Interest
Committee. The committees meet, as necessary, to determine the rates of interest
for loans and deposits. Rates on deposits are primarily based on the Bank's need
for funds and on a review of rates offered by other financial institutions in
the Bank's market areas. Interest rates on loans are primarily based on the
interest rates offered by other financial institutions in the Bank's primary
market areas as well as the Bank's cost of funds.
The committees manage the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The committees then monitor the impact of interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to manage interest rate sensitivity of its interest earning assets and interest
bearing liabilities by maintaining sufficient capital and other liquid assets in
the event of an increase in interest rate risk, typically because of an increase
in market interest rates.
-6-
<PAGE>
NET PORTFOLIO VALUE
The Bank computes amounts by which the net present value of cash flow from
assets, liabilities and off balance sheet items ("the net portfolio value" or
"NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on the Bank's NPV from
instantaneous and permanent 1% to 3% (100 to 300 basis points) increases and
decreases in market interest rates. Based upon OTS assumptions, the following
table presents the Bank's NPV at March 31, 2000.
Net Portfolio Value
-----------------------
Change Board
in Market NPV Policy
Interest Rates Ratio Limit (2)
-------------- -------- -----------
+300 bp 23.34% 10%
+200 bp 25.10 10
+100 bp 26.84 10
0 bp 28.73 10
-100 bp 29.62 10
-200 bp 29.92 10
-300 bp 30.35 10
--------------
(1) The NPV ratio is calculated as the estimated NPV divided by the estimated
NPV of assets.
(2) Minimum acceptable NPV ratio limits are established by the Board of
Directors of the Bank.
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings institutions were employed in preparing the previous table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
-7-
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income and expense by the
average balance of assets and liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material differences in the information presented
<TABLE>
<CAPTION>
Year Ended March 31, At March 31,
------------------------------------------------- ----------------
2000 1999 2000
------------------------ ------------------------- ----------------
Average Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
------- -------- ---- ------- -------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $24,955 $1,982 7.94% $24,032 $2,002 8.33% $25,389 7.66%
Investment
securities (2)(6) 5,186 262 5.05% 6,580 322 4.89% 4,043 5.68%
Mortgage-backed
securities 660 40 6.06% 568 41 7.22% 559 6.99%
------- ------- ------ ------ ------ ------- ------- ------
Total interest-
earning assets 30,801 2,284 7.42% 31,180 2,365 7.58% 29,991 7.38%
------- ------ ------ ------- ------
Non-interest-earning
assets 1,325 807 1,771
------- ------ -------
Total assets $32,126 $31,987 $31,762
======= ====== =======
Interest-bearing
liabilities:
Regular savings
deposits $8,588 302 3.52% $8,233 295 3.58% $8,744 3.50%
Now accounts 1,395 34 2.44% 1,224 29 2.37% 1,519 2.50%
Money market demand 1,097 36 3.28% 1,160 34 2.93% 976 3.25%
Time deposits 10,066 509 5.06% 9,775 506 5.18% 9,815 5.41%
------- ------- ------ ------ ------ ------- ------- ------
Subtotal deposits 21,146 881 4.17% 20,392 864 4.24% 21,054 4.31%
Short-term borrowings 946 51 5.39% 615 32 5.20% 900 6.62%
------- ------- ------ ------ ------ ------- ------- ------
Total interest-
bearing
liabilities 22,092 932 4.22% 21,007 896 4.27% 21,954 4.40%
------- ------ ------ ------- ------
Noninterest-bearing
liabilities 459 665 385
------- ------ -------
Total Liabilities 22,551 21,672 22,339
Retained Earnings (3) 9,575 10,315 9,423
------- ------ -------
Total liabilities
and retained
earnings $32,126 $31,987 $31,762
======= ====== =======
Net interest income $1,352 $1,469
======= ======
Interest rate spread(4) 3.20% 3.32% 2.98%
====== ======= ======
Net yield on interest-
earning assets(5) 4.39% 4.71% 4.51%
====== ======= ======
Ratio of average interest-
earning assets to average
interest-bearing liabi1ities 139.42% 148.43% 136.62%
======= ======= ======
</TABLE>
-----------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions, FHLB
stock and FHLMC stock; bonds
(3) Includes accumulated other comprehensive income on securities
available-for-sale, net of applicable deferred income taxes.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(6) Includes municipal securites whose average yield/cost at March 31, 2000 is
calculated on the tax equivalent yield.
-8-
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended March 31,
2000 vs. 1999
-----------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 77 ($ 94) ($ 5) ($ 22)
Investment securities (68) 11 (2) (59)
Mortgage-backed securities 7 (7) (1) (1)
----- ----- ----- -----
Total interest-earning assets 16 (90) (8) (82)
----- ----- ----- -----
Interest-bearing liabilities:
Savings deposits 32 (14) (1) 17
Short-term borrowings 17 1 1 19
----- ----- ----- -----
Total interest-bearing liabilities 49 (13) -- 36
----- ----- ----- -----
Net change in net interest income ($ 33) ($ 77) ($ 8) ($118)
===== ===== ===== =====
</TABLE>
-9-
<PAGE>
Comparison of Financial Condition
In connection with the Conversion on June 25, 1997, the Company completed the
sale of 661,428 shares (the "Offering") at $10 per share and received net
proceeds of approximately $5,665,000. The Company transferred approximately
$3,097,000 of the net proceeds to the Bank for the purchase of all of the
capital stock of the Bank. In addition, $529,140 was loaned to the Bank's
Employee Stock Ownership Plan ("ESOP") for the purchase of shares in the
Offering.
The Company's total assets decreased by approximately $426,000 to $31,762,000 at
March 31, 2000, from $32,188,000 at March 31, 1999. Cash and cash equivalents
decreased $1,485,000 to $389,000 at March 31, 2000, from $1,874,000 at March 31,
1999. This decrease represented the outflow of cash associated with the purchase
of available-for-sale securities, increase in loan production, purchase of
office properties and equipment, and purchase of Treasury shares, offset by
depositors' investment of funds, maturity and sale of available-for-sale
securities, and principal collected on mortgage-backed securities. Investment
securities decreased $906,000 from $5,259,000 at March 31, 1999, to $4,353,000
at March 31, 2000. This decrease was the result of $1.3 million in matured or
sold U.S. Agency securities, $247,000 in principal collected on mortgage-backed
securities, and $413,000 decrease in the market value of available-for-sale
securities, offset by the purchase of $1.1 million in U.S. Agency securities.
Net loans receivable increased $1.1 million from $24,320,000 at March 31, 1999,
to $25,389,000 at March 31, 2000. The increase in loans was attributable to an
increase in one-to-four family residential mortgage loans. Such increases
primarily reflect the economic health of the Bank's market area and the
competitive pricing of the Bank's loan products. Office property and equipment
increased $881,000 from $488,000 at March 31, 1999, to $1,369,000 at March 31,
2000, which was the direct result of the purchase of land and construction costs
of a new branch office in Parkersburg, West Virginia.
Total liabilities decreased $57,000 from $22,396,000 at March 31, 1999, to
$22,339,000 at March 31, 2000. The decrease was attributable to a $159,000
decrease in deferred income taxes from $359,000 at March 31, 1999, to $200,000
at March 31, 2000, which was a result of the tax effect on the decrease in the
market value of available-for-sale securities during the year ended March 31,
2000. The Federal Home Loan Bank ("FHLB") advance decreased $100,000 from $1.0
million at March 31, 1999, to $900,000 at March 31, 2000. Deposits increased by
$206,000 to $21,054,000 at March 31, 2000, from $20,848,000 at March 31, 1999.
Stockholders' equity decreased $368,000 to $9,424,000 at March 31, 2000,
compared to $9,792,000 at March 31, 1999. The decrease was attributable to the
purchase of Treasury shares in the amount of $323,000, payment of dividends in
the amount of $174,000, and the decrease of $266,000 in accumulated other
comprehensive income from $686,000 as of March 31, 1999, to $420,000 as of March
31, 2000 as a result of the decrease in the market value of available-for-sale
securities. This decrease was offset by net income of $266,000, allocation of
shares in the ESOP in the amount of $56,000 and vesting of shares in the RSP in
the amount of $72,000.
-10-
<PAGE>
Comparison of the Results of Operations for the Years Ended March 31, 2000 and
1999
Net Income. Net income decreased by $123,000, or 31.7%, from net income of
$389,000 for the year ended March 31, 1999, to net income of $266,000 for the
year ended March 31, 2000.
Interest and Dividend Income. Interest and dividend income decreased $80,000, or
3.4%, to $2,284,000 for the year ended March 31, 2000, compared to $2,364,000
for the year ended March 31, 1999. The decrease in interest and dividend income
was the result a decrease in interest on investments in the amount of $65,000,
or 19.0%, and the decrease in interest on loans in the amount of $21,000, or
1.0%. The decrease in interest on investments from $340,000 as of March 31,
1999, to $275,000 as of March 31, 2000, was the result of a decrease in the
average balance of investments of $1.4 million from $6.5 million for the year
ended March 31, 1999, to $5.1 million for the year ended March 31, 2000, offset
by the increase in yields on investment securities by 16 basis points from 4.89%
as of March 31, 1999, to 5.05% as of March 31, 2000. The decrease in taxable
interest on loans from $2,002,000 as of March 31, 1999, to $1,981,000 as of
March 31, 2000, was due to a decline of 39 basis points in average yield from
8.33% to 7.94% offset by the increase in the average balance of loans of
$923,000, from $24.0 million for the year ended March 31, 1999, to $24.9 million
as of March 31, 2000.
Interest Expense. Interest expense increased $36,000, or 4.0%, from $896,000 for
the year ended March 31, 1999, to $932,000 for the year ended March 31, 2000. An
increase in the average balance of interest- bearing deposits of $754,000 to
$21.1 million from $20.3 million, offset by a reduction in the cost of funds
from 4.24% for the year ended March 31, 1999, as compared to 4.17% for the year
ended March 31, 2000, resulted in the increase in interest expense on deposits
of $17,000, or 2.0%. Interest expense on the FHLB advance increased $19,000, or
58.7%, from $32,000 as of March 31, 1999, to $51,000 as of March 31, 2000. The
increase was the direct result of an increase in the average balance of the FHLB
advance in the amount of $331,000 with an increase in average yield of 19 basis
points from 5.20% at March 31, 1999, to 5.39% at March 31, 2000.
Net Interest Income. Net interest income decreased $117,000, or 7.9%, from
$1,469,000 for the year ended March 31, 1999, to $1,352,000 for the year ended
March 31, 2000. The decrease is primarily attributable to a decrease in the
average balance of investment securities and an increase in the average balance
of interest-bearing deposits and FHLB advances from the year ended March 31,
1999, to the year ended March 31, 2000, as previously discussed.
Provision For Loan Losses. The provision for loan losses increased $1,000, or
21.9%, from $3,000 for the year ended March 31, 1999, to $4,000 for the year
ended March 31, 2000, based on management's analysis of the reserve's adequacy.
The reserve for loan losses was $175,000 at March 31, 2000, as compared to
$172,000 at March 31, 1999.
Noninterest income. Noninterest income decreased by $167,000, or 82.6%, from
$202,000 for the year ended March 31, 1999, to $35,000 for the year ended March
31, 2000. The decrease is primarily attributable to a gain on the sale of
available-for-sale securities during the year ended March 31, 1999, in the
amount of $168,000 which was not present during the year ended March 31, 2000.
The remaining portion of noninterest income is comprised primarily of service
charges on deposit accounts.
Noninterest Expense. Noninterest expense decreased by $73,000, or 6.9%, from
$1,055,000 for the year ended March 31, 1999, to $982,000 for the year ended
March 31, 2000. Compensation and employee benefits decreased by $114,000, or
17.3%, from $663,000 for the year ended March 31, 1999, to $549,000 for the year
ended March 31, 2000. The change is due to a decrease in compensation costs of
$79,000 associated with the RSP and ESOP. The decrease is also attributable to
special one-time retirement agreements executed by four directors resulting in a
pre-tax charge of approximately $94,000 during the year
-11-
<PAGE>
ended March 31, 1999, which did not occur during the year ended March 31, 2000.
Under terms of the agreements, the four directors accepting the offer
relinquished their positions as directors on July 2, 1998. These decreases were
offset by a $59,000 increase which was the direct result of an increase in the
number of employees associated with the anticipated opening of the new branch
office. Advertising and public relations increased by $12,000, or 51.1%, from
$23,000 for the year ended March 31, 1999, to $35,000 for the year ended March
31, 2000. The change is the result of the increase in expenses related to the
advertisement of the new branch office located in Parkersburg, WV to be opened
during the year ended March 31, 2001. Other expenses increased by $9,000, or
13.0%, to $79,000 for the year ended March 31, 2000, from $70,000 for the year
ended March 31, 2000. The increase is attributable to an increase in stationery,
printing, and miscellaneous expenses related to the opening of the new branch
office. Loss on securities available-for-sale was $23,000 for the year ended
March 31, 2000, which did not occur during the year ended March 31, 1999.
Income Taxes. Income tax expense decreased by $88,000, or 39.5%, from $223,000
for the year ended March 31, 1999, to $135,000 for the year ended March 31,
2000. The decrease is due to a decrease in pre-tax income.
Liquidity and Capital Resources
The Bank's sources of funds are deposits, amortization and prepayment of loans
and mortgage-backed securities, maturities of investment securities, and funds
provided from operations. While scheduled loan repayments are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank uses its sources of funds to fund existing and future existing and future
loan commitments, to fund maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and to meet operating expenses.
Net cash provided by operating activities for the year ended March 31, 2000,
totaled $434,000, a decrease of $29,000 from $463,000 for the year ended March
31, 1999. The change was primarily attributable to net income of $266,000 for
the year ended March 31, 2000, adjusted by depreciation, amortization, and
accretion in the amount of $50,000, and the amortization of the ESOP and RSP in
the amount of $56,000 and $72,000, respectively.
Net cash used in investing activities for the year ended March 31, 2000, totaled
$1,529,000, an increase of $1,515,000 from $14,000 for the year ended March 31,
1999. The increase in cash used for investing activities was attributable to
$1,060,000 used to purchase investment securities, $1,073,000 in net loan
originations, and $925,000 used in purchases of office properties and equipment,
offset by the increase of $1,530,000 provided by the maturity and sale of
investments and repayments on mortgage-backed securities.
Net cash used in financing activities for the year ended March 31, 2000, totaled
$390,000, as compared to net cash used in financing activities of $141,000 for
the year ended March 31, 1999. The increase of $249,000 was the result of the
purchase of Treasury shares in the amount of $323,000, payment of dividends in
the amount of $174,000, and the net repayment of the FHLB advance of $100,000,
offset by the net increase in customer deposits in the amount of $206,000.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry, and similar matters. Management monitors projected liquidity
needs and determines the level desired based, in part, on the Bank's commitments
to make loans and management's assessment of the Bank's ability to generate
funds.
Certificates of deposit scheduled to mature during the year ended March 31,
2000, total $5,200,000. The Bank may renew these certificates, attract new
replacement deposits or replace such funds with borrowed funds. Management
believes, based on past experience, that the Bank will retain much of the
deposits or replace them with new deposits.
-12-
<PAGE>
Under federal regulations, the Bank is required to meet certain minimum
regulatory capital guidelines. The Bank was in compliance with these
requirements at March 31, 2000. See Note 7 of the Notes to Consolidated
Financial Statements.
Impact of Inflation and Changing Prices
The consolidated financial statements and the accompanying notes presented
elsewhere in this document, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. Unlike industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the direction or with the same magnitude as the prices
of goods and services.
Recent Accounting Pronouncements
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
presentation of comprehensive income and its components (revenue, expenses,
gains, losses) in a full set of general purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is presented with the same prominence as other financial
statements. Statement No. 130 requires that companies (i) classify items of
other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. Reclassification of financial statements for
earlier periods provided for comprehensive purpose is required. The Company
current holds securities classified as available-for-sale. Under the provisions
of Statement No. 130, unrealized gains and losses on securities classified as
available-for-sale are a component of comprehensive income.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position, recorded
at fair value. SFAS No. 133 precludes a held-to-maturity security from being
designated as a hedge item. However, at the date of initial application of SFAS
No. 133, an entity is permitted to transfer any held-to-maturity security into
the available-for-sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of SFAS No. 115, "Accounting for Certain Investment in Debt and
Equity Securities." Such transfers do not raise an issue regarding an entity's
intent to hold other debt securities to maturity in the future. SFAS No. 133
applies prospectively for all fiscal quarters of all years beginning after June
15, 1999. Earlier adoption is permitted for any fiscal quarter that begins after
the issue date of SFAS No. 133. Management does not believe the adoption of SFAS
No. 133 will have a material impact on the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities," and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," to require that, after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. The statement is effective for the first fiscal quarter beginning
after December 15, 1998. The adoption of SFAS No. 134 did not have a material
impact on the Company.
-13-
<PAGE>
Year 2000
Rapid and accurate data processing is essential to the Bank's operations.
Accordingly, prior to the Year 2000, the Bank evaluated both information
technology (computer systems) and non-information technology systems (e.g.,
vault timers and electronic door lock). Based upon such evaluations, management
determined that the Bank had Year 2000 risk in three areas: (1) Bank's own
computers (2) Computers of others used by the Bank's borrowers, and (3)
Computers of others who provide the Bank with data processing.
Bank's Own Computers. The Bank upgraded its computer system to address the Year
2000 risk. The Bank did not experience any material problems or material costs
to address the risk.
Computers of Others Used by the Bank's Borrowers. The Bank evaluated most of its
borrowers and determined that the Year 2000 problem did not, on an aggregate
basis, impact their ability to make payments to the Bank. The Bank determined
that most of its residential borrowers were not dependent on their home
computers for income and that none of their commercial borrowers are so large
that a Year 2000 problem rendered them unable to collect revenue or rent and, in
turn, be unable to continue to make loan payments to the Bank. The Bank did not
incur any material costs to address this risk area. Since December 31, 1999, the
Bank has not experienced any material Year 2000 problems arising from the
computers of others used by its borrowers.
Computers of Others Who Provide the Bank with Data Processing. The Bank
determined that the risk in this area was primarily focused on two third party
service bureaus that provide virtually all of the Bank's data processing. Since
December 31, 1999, the Bank has not experienced any material problems arising
from the Year 2000 compliance of the service bureaus.
-14-
<PAGE>
Independent Auditor's Report
----------------------------
Board of Directors
Sistersville Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Sistersville
Bancorp, Inc. as of March 31, 2000 and 1999, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity, and
cash flows for each of the years then ended. These financial statements are the
responsibility of the Company'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sistersville
Bancorp, Inc. at March 31, 2000 and 1999, and the consolidated results of its
operations and cash flows for each of the years then ended, in conformity with
generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
-----------------------
Wheeling, West Virginia
April 14, 2000
-15-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents
Cash and amounts due from banks $ 141,439 $ 29,823
Interest - bearing deposits with other institutions 247,632 1,843,976
------------ ------------
Total cash and cash equivalents 389,071 1,873,799
------------ ------------
Investment Securities
Securities held-to-maturity (fair value of $239,716
and $356,980, respectively) 237,873 350,815
Securities available-for-sale 4,115,617 4,908,390
------------ ------------
Total investment securities 4,353,490 5,259,205
------------ ------------
Loans receivable, (net of allowance for loan losses
of $174,550 and $172,250, respectively) 25,389,113 24,319,941
Office properties and equipment, net 1,368,620 487,735
Accrued interest receivable (net of reserve
for uncollected interest of $-0- for 2000 and 1999) 215,451 212,644
Other assets 46,670 34,224
------------ ------------
TOTAL ASSETS $ 31,762,415 $ 32,187,548
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 21,053,607 $ 20,847,502
Federal Home Loan Bank advance 900,000 1,000,000
Deferred income taxes 199,796 358,818
Accrued interest payable and other liabilities 185,425 189,656
------------ ------------
Total liabilities 22,338,828 22,395,976
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par value;
500,000 shares authorized, none issued -- --
Common Stock, $.10 par value;
2,000,000 shares authorized; 661,428 issued;
538,739 outstanding at March 31, 2000, and
567,093 outstanding at March 31, 1999 66,143 66,143
Additional paid - in capital 6,182,238 6,178,859
Treasury Stock (122,689 shares at March 31, 2000;
94,335 shares at March 31, 1999) (1,649,297) (1,326,770)
Retained Earnings - substantially restricted 4,983,212 4,890,911
Accumulated other comprehensive income 420,350 685,720
Unearned Employee Stock Ownership Plan shares (ESOP) (366,694) (419,074)
Unearned Restricted Stock Plan shares (RSP) (212,365) (284,217)
------------ ------------
Total stockholders' equity 9,423,587 9,791,572
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,762,415 $ 32,187,548
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-16-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Taxable interest on loans $1,965,773 $1,993,920
Taxable interest on investments 234,036 334,750
Nontaxable interest on loans 15,859 8,477
Nontaxable interest on investments 41,116 4,903
Dividends on Federal Home Loan Bank stock 15,794 14,663
Dividends on Federal Home Loan Mortgage Corporation stock 11,581 7,924
---------- ----------
Total interest and dividend income 2,284,159 2,364,637
---------- ----------
INTEREST EXPENSE
Deposits 881,644 864,295
Federal Home Loan Bank advances 50,633 31,901
---------- ----------
Total interest expense 932,277 896,196
---------- ----------
NET INTEREST INCOME 1,351,882 1,468,441
PROVISION FOR LOAN LOSSES 4,145 3,400
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,347,737 1,465,041
---------- ----------
NONINTEREST INCOME
Service charges 32,664 31,908
Gain on securities available-for-sale -- 167,536
Other income 2,374 2,408
---------- ----------
Total noninterest income 35,038 201,852
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 548,569 662,954
Occupancy 49,210 41,672
Furniture and equipment expense 38,041 36,691
Deposit insurance premiums 10,430 12,714
Supervisory examination, audit and legal 70,064 77,308
Advertising and public relations 34,651 22,935
Service bureau expense 68,622 63,879
Franchise, payroll and other taxes 60,531 66,337
Other expenses 79,073 70,008
Loss on securities available-for-sale 22,579 --
---------- ----------
Total noninterest expense 981,770 1,054,498
---------- ----------
INCOME BEFORE INCOME TAXES 401,005 612,395
INCOME TAXES 135,022 223,029
---------- ----------
NET INCOME $ 265,983 $ 389,366
========== ==========
EARNINGS PER SHARE
Basic $ 0.54 $ 0.71
========== ==========
Diluted $ 0.53 $ 0.70
========== ==========
AVERAGE SHARES OUTSTANDING
Basic 490,713 545,755
========== ==========
Diluted 503,471 558,363
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-17-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended March 31,
2000 1999
--------- ----------
NET INCOME $ 265,983 $ 389,366
--------- ---------
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on securities:
Unrealized holding gain (loss) (280,177) 109,236
Reclassification adjustment for loss (gain)
included in net income 14,807 (109,853)
--------- ---------
Other comprehensive loss (265,370) (617)
--------- ---------
COMPREHENSIVE INCOME $ 613 $ 388,749
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
-18-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Retained Other Total
Additional Earnings- Compre- Unearned Unearned Stock-
Preferred Common Paid In Substantially hensive Shares in Shares in Treasury holders'
Stock Stock Capital Restricted Income ESOP RSP Stock Equity
--------- ------------------- ------------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
MARCH 31, 1998 $ - $66,143 $6,152,518 $4,686,573 $686,337 $(480,989) $ - $ (529,136) $10,581,446
1999 net income - - - 389,366 - - - - 389,366
Accrued
compensation
expense - ESOP - - 26,341 - - 61,915 - - 88,256
Purchase of RSP
shares - - - - - - (410,084) - (410,084)
Vesting of RSP
shares - - - - - - 125,867 - 125,867
Other
comprehensive
income (loss),
net of tax - - - - (617) - - - (617)
Cash dividends
declared ($.33
per share) - - - (185,028) - - - - (185,028)
Purchase of
Treasury
Stock - - - - - - - (797,634) (797,634)
--------- ------- ---------- ---------- -------- --------- --------- ------------ -----------
BALANCE,
MARCH 31, 1999 - 66,143 6,178,859 4,890,911 685,720 (419,074) (284,217) (1,326,770) 9,791,572
2000 net income - - - 265,983 - - - - 265,983
Accrued
compensation
expense - ESOP - - 3,379 - - 52,380 - - 55,759
Vesting of RSP
shares - - - - - - 71,852 - 71,852
Other
comprehensive
income (loss),
net of tax - - - - 265,370) - - - (265,370)
Cash dividends
declared ($.35
per share) - - - (173,682) - - - - (173,682)
Purchase of
Treasury
Stock - - - - - - - (322,527) (322,527)
--------- ------- ---------- ---------- -------- --------- --------- ------------ -----------
BALANCE,
MARCH 31, 2000 $ - $66,143 $6,182,238 $4,983,212 $420,350 $(366,694) $(212,365) $(1,649,297) $ 9,423,587
========= ======= ========== ========== ======== ========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-19-
<PAGE>
SISTERSVILLE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 265,983 $ 389,366
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion, net 50,468 49,496
Loss (gain) on sale of available-for-sale securities 22,579 (167,536)
Provision for loan losses 4,145 3,400
Deferred federal income taxes (11,400) 4,961
ESOP amortization 55,759 88,256
RSP amortization 71,852 125,867
Decrease (increase) in accrued interest receivable
and other assets (21,208) (17,458)
Increase (decrease) in accrued interest payable
and other liabilities (4,228) (13,705)
----------- -----------
Net cash provided by operating activities 433,950 462,647
----------- -----------
INVESTING ACTIVITIES
Purchase of available-for-sale securities (1,059,938) (3,080,402)
Proceeds from sale of available-for-sale securities 382,892 171,053
Proceeds from maturity of available-for-sale securities 900,000 4,067,447
Purchase of mortgage-backed securities held-to-maturity -- (514,937)
Principal collected on mortgage-backed securities 246,844 172,736
Net increase in loans (1,073,317) (676,417)
Purchases of office properties and equipment (925,054) (153,156)
----------- -----------
Net cash used in investing activities (1,528,573) (13,676)
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 206,104 251,537
Federal Home Loan Bank advance (100,000) 1,000,000
Purchase of RSP shares -- (410,084)
Dividends Paid (173,682) (185,028)
Purchase of Treasury Stock (322,527) (797,634)
----------- -----------
Net cash used in financing activities (390,105) (141,209)
----------- -----------
Increase (decrease) in cash and cash equivalents (1,484,728) 307,762
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,873,799 1,566,037
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 389,071 $ 1,873,799
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period for:
Interest on deposits $ 934,274 $ 898,729
Income taxes 249,040 240,927
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-20-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sistersville Bancorp, Inc. (the "Company") was organized in March, 1997,
as a State of Delaware chartered corporation. The Company acquired 100% of
the common stock of First Federal Savings Bank (the "Bank") upon the
conversion of First Federal Savings and Loan Association of Sistersville
(the "Association") from a federally-chartered mutual savings and loan to
a federally- chartered stock savings bank in June, 1997. The operating
results of the Company depend primarily upon the operating results of the
Bank.
Nature of Operations - The Company provides savings and financing services
primarily to individuals through its wholly-owned subsidiary, First
Federal Savings Bank located in Sistersville, West Virginia. Primary
deposit products consist of savings, NOW, and Money Market deposit
accounts, and certificates of deposit. Primary lending products consist of
conventional mortgage, construction, and consumer loans. The Bank's
primary market area for lending and deposits consists of Wood, Pleasants,
Tyler, and Wetzel Counties in West Virginia.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, First
Federal Savings Bank. Material intercompany accounts and transactions have
been eliminated.
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, disclosures 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.
Held-to-Maturity Securities - These securities are purchased with the
original intent to hold to maturity and events which may be reasonably
anticipated are considered when determining the Company's intent and
ability to hold to maturity. Securities meeting such criteria at the date
of purchase and as of the balance sheet date are carried at cost, adjusted
for amortization of premiums and accretion of discounts.
Available-for-Sale Securities - Securities to be held for indefinite
periods of time and not intended to be held-to-maturity are classified as
available for sale and carried at market value with unrealized gains and
losses, net of tax, reflected as a component of shareholders' equity until
realized. Securities held for indefinite periods of time include
securities that may be sold to meet liquidity needs or in response to
significant changes in interest rates or prepayment risks as part of the
Company's overall asset/liability management strategy. Realized securities
gains and losses are computed using the specific identification method.
Interest and Fees on Loans - Interest on loans is credited to income as
earned and is accrued only if it is considered collectible. An allowance
for uncollected interest on mortgage loans is provided for all accrued
interest on loans which are delinquent 90 days or more resulting in
interest previously accrued on those loans being reversed from income and,
thereafter, interest is recognized only to the extent of payments
received. Loans are returned to accrual status when less than 90 days
delinquent and when, in management's judgment, collection is probable.
-21-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company adopted the provisions of Statement of Financial Accounting
Standards Nos. 114 and 118, "Accounting for Creditors for Impairment of a
Loan." It is the Company'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 SFAS Nos. 114 and 118, the Company 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
lives of the related loans or commitments as an adjustment of the related
loan's yield using the interest method.
Allowance for Loan Losses - The allowance for loan losses is maintained at
a level which, in management's judgment, is adequate to absorb credit
losses inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans, and
economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Because of uncertainties
inherent to the estimation process, management's estimate of credit losses
inherent in the loan portfolio and the related allowance may change in the
near term.
Real Estate Acquired in Settlement of Loans - Real estate acquired in
settlement of loans is classified separately on the balance sheets at the
lower of the recorded investment in the property or its fair value minus
estimated costs of sale.
Office Properties and Equipment - Premises and equipment are stated
at cost, less accumulated depreciation. Provisions for depreciation are
computed on the straight-line method over the estimated useful lives of
the assets.
When units of property are disposed of, the premises and equipment
accounts are relieved of the cost and the accumulated depreciation related
to such units. Any resulting gains or losses are credited to or charged
against income. Costs and repairs and maintenance are charged to expense
as incurred. Major renewals and betterments are capitalized at cost.
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled.
-22-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common Share - On June 25, 1997, the Company issued 661,428
shares of common stock. As discussed in Note 10, the Company accounts for
the 52,914 shares acquired by the Employee Stock Ownership Plan (the
"ESOP") in accordance with Statement of Position 93-6;shares controlled by
the ESOP are not considered in the weighted average shares outstanding
until the shares are committed for allocation to employee accounts. The
proforma net income per share for the 2000 fiscal year is $.40 and for the
1999 fiscal year is $.59, ssuming the shares had been outstanding for the
entire period.
The following table sets forth the computation of basic and diluted
earnings per share. There were no convertible securities which would
affect the numerator in calculating basic and diluted earnings per share;
therefore, net income as presented on the Consolidated Statements of
Income for March 31, 2000, and for March 31, 1999 will be used as the
numerator. The following tables set forth a reconciliation of the
denominator of the basic and diluted earnings per share computation:
<TABLE>
<CAPTION>
December 31,
2000 1999
-------- --------
<S> <C> <C>
Denominator:
Denominator for basic earnings per share-weighted-
average shares 490,713 545,755
Employee stock options (antidilutive) - -
Unvested RSP shares 12,758 12,608
-------- -------
Denominator for diluted earnings per share-adjusted
weighted-average assumed conversions 503,471 558,363
======== =======
</TABLE>
Reclassification - Certain prior year amounts have been reclassified to
conform with the current year's presentation.
Cash Flows Information - The Company's policy is to include cash on hand,
amounts due from depository institutions, and overnight deposits with the
Federal Home Loan Bank in the definition of cash and cash equivalents.
NOTE 2 - STOCKHOLDERS' EQUITY
On June 25, 1997, the Company completed the sale of 661,428 common shares
at $10 per share and received net proceeds of $5,664,987. Included in the
661,428 shares were 52,914 shares acquired by the ESOP. As of March 31,
2000, the Company has 122,689 shares held for treasury.
-23-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED)
The following table represents the change in the Company's outstanding
shares:
Preferred Common
Stock Stock
----------- ------------
Shares outstanding, March 31, 1998 - 628,357
Shares repurchased - (61,264)
----------- ------------
Shares outstanding, March 31, 1999 - 567,093
Shares repurchased - (28,354)
----------- ------------
Shares outstanding, March 31, 2000 - 538,739
=========== ============
NOTE 3 - INVESTMENT SECURITIES
The carrying amounts and fair values of investment securities are as
follows at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Securities available- for-sale:
Federal Home Loan Bank stock
(restricted) $ 235,700 $ - $ - $ 235,700
Federal Home Loan Mortgage
Corporation stock 18,714 818,631 - 837,345
Municipal securities 906,238 - (96,015) 810,223
U.S. agency obligations 1,999,942 - (88,593) 1,911,349
Mortgage-backed securities-
GNMA 320,571 429 - 321,000
------------- ------------ ------------ -------------
Total available-for-sale 3,481,165 819,060 (184,608) 4,115,617
Securities to be held-to-maturity:
Mortgage-backed securities-
GNMA and FHLMC 237,873 1,869 (26) 239,716
------------- ------------ ------------ -------------
Total $ 3,719,038 $ 820,929 $ (184,634) $ 4,355,333
============= ============ ============ =============
</TABLE>
-24-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Federal Home Loan Bank stock
(restricted) $ 225,700 $ - $ - $ 225,700
Federal Home Loan Mortgage
Corporation stock 18,714 1,082,615 - 1,101,329
Municipal securities 906,621 - (20,861) 885,760
U.S. agency obligations 2,251,369 1,200 (15,510) 2,237,059
Mortgage-backed securities-
GNMA 458,542 - - 458,542
------------- ------------ ------------ -------------
Total available-for-sale 3,860,946 1,083,815 (36,371) 4,908,390
Securities to be Held to Maturity:
Mortgage-Backed Securities-
GNMA and FHLMC 350,815 6,165 - 356,980
------------- ------------ ------------ -------------
Total $ 4,211,761 $ 1,089,980 $ (36,371) $ 5,265,370
============= ============ ============ =============
</TABLE>
The amortized and estimated market value of investment securities at March
31, 2000 and 1999, by contractual maturity, follow. Expected maturities
will differ from contractual maturities because issuers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
March 31, 2000
------------------------------------------------------------
Securities Securities
Available-for-Sale Held-to-Maturity
---------------------------- ----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ - $ -
Due after one year
through five years 900,000 860,725 - -
Due after five years
through ten years 599,942 573,529 - -
Due after ten years 1,406,238 1,287,318 - -
Mortgage-backed securities 320,571 321,000 237,873 239,716
Equity securities 254,414 1,073,045 - -
------------- ------------ --------- -----------
Total $ 3,481,165 $ 4,115,617 $ 237,873 $ 239,716
============= ============ ========= ===========
</TABLE>
-25-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------------------------
Securities Securities
Available-for-Sale Held-to-Maturity
---------------------------- -----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Due in one year or less $ 201,489 $ 202,688 $ - $ -
Due after one year
through five years 849,478 837,327 - -
Due after five years
through ten years 1,000,402 997,042 - -
Due after ten years 1,106,621 1,085,762 - -
Mortgage-backed securities 458,542 458,542 350,815 356,980
Equity securities 244,414 1,327,029 - -
------------- ------------ ----------- -------------
Total $ 3,860,946 $ 4,908,390 $ 350,815 $ 356,980
============= ============ =========== =============
</TABLE>
There were no transfers of securities between classifications in 2000 or
1999.
NOTE 4 - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans outstanding at March 31 are as follows:
2000 1999
--------------- ---------------
Mortgage Loans:
Construction $ 500,000 $ 119,000
1-4 family 24,540,264 23,681,466
Consumer Loans:
Automobiles 568,989 699,069
Savings account 91,269 99,454
Other 9,672 18,432
Commercial 275,714 269,270
--------------- ---------------
Total 25,985,908 24,886,691
Less:
Allowance for loan losses 174,550 172,250
Undisbursed funds 381,015 342,928
Net deferred loan fees 41,230 51,572
--------------- ---------------
Loans receivable, net $ 25,389,113 $ 24,319,941
=============== ===============
-26-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 4 - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES (CONTINUED)
Activity in the allowance for loan losses for the years ended March 31,
2000 and 1999, is summarized as follows:
2000 1999
---------- ----------
Balance, beginning of year $ 172,250 $ 168,850
Add provisions charged to operations 4,145 3,400
---------- ----------
176,395 172,250
Less loans charged off 1,845 -
---------- ----------
Balance, end of period $ 174,550 $ 172,250
========== ==========
In the normal course of business, loans are extended to directors and
executive officers and their associates. In management's opinion, all
loans are on substantially the same terms and conditions as loans to other
individuals and businesses of comparable creditworthiness. Total loans
outstanding to officers and directors at March 31, 2000 and 1999, were
$25,437 and $28,633, respectively.
NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT
Properties and equipment at March 31 are summarized as follows:
2000 1999
----------- ------------
Land $ 38,500 $ 38,500
Office buildings and improvements 1,460,524 543,300
Furniture, fixtures, and equipment 250,022 242,192
----------- ------------
Total 1,749,046 823,992
Less accumulated depreciation 380,426 336,257
----------- ------------
Premises and equipment, net $ 1,368,620 $ 487,735
=========== ============
Depreciation charged to operations amounted to $44,169 and $43,783 for the
years ended March 31, 2000 and 1999, respectively.
-27-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 6 - DEPOSITS ANALYSIS
Deposit accounts at March 31 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------- -----------------------------
Percent of Percent of
Amount Portfolio Amount Portfolio
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Savings accounts $ 8,743,878 41.5% $ 8,426,081 40.4%
NOW accounts 1,518,550 7.2% 1,326,967 6.4%
Money market accounts 976,096 4.7% 1,136,401 5.4%
-------------- ---------- -------------- ----------
11,238,524 53.4% 10,889,449 52.2%
-------------- ---------- -------------- ----------
Certificates of deposit:
4.01 - 6.00% 9,394,373 44.6% 8,997,052 43.2%
6.01 - 8.00% 420,710 2.0% 961,001 4.6%
-------------- ---------- -------------- ----------
9,815,083 46.6% 9,958,053 47.8%
-------------- ---------- -------------- ----------
Total $ 21,053,607 100.0% $ 20,847,502 100.0%
============== ========== ============== ==========
</TABLE>
The scheduled maturities of certificates of deposit at March 31, 2000, are
as follows:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Within one year $ 5,246,913
Due after one year, but within two years 2,079,935
Due after two years, but within three years 1,145,023
Due after three years 1,343,212
-------------
Total $ 9,815,083
=============
</TABLE>
Certificates of deposit issued in denominations of $100,000 or more
amounted to $472,377 at March 31, 2000, and $566,403 at March 31, 1999.
Deposits in excess of $100,000 are not federally insured.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999
-------------- -------------
<S> <C> <C>
Savings - passbook $ 302,203 $ 295,396
NOW and money market 70,092 63,497
Time certificates of deposit 509,349 505,402
-------------- -------------
Total $ 881,644 $ 864,295
============== =============
</TABLE>
-28-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 7 - REGULATORY MATTERS
The Subsidiary Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary
actions by regulators, that if undertaken, could have a direct material
affect on the Bank's financial statements. Under the regulatory capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification under the prompt corrective
action guidelines are also subject to qualitative judgement by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank 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 tangible and core capital (as
defined) to adjusted assets (as defined). Management believes, as of March
31, 2000, that the Bank meets all capital adequacy requirements to which
they are subject.
As of March 31, 2000, the most recent notification from the Office of
Thrift Supervision categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as
"well capitalized", the Bank must maintain minimum total risk-based, Tier
I (core) risk-based, core, and tangible ratios as set forth in the table.
There are no conditions or events since the notification that management
believes have changed the institution's category.
The following table reconciles capital under generally accepted accounting
principles to regulatory capital:
March 31,
2000 1999
---------- ---------
(In Thousands)
Total equity $ 8,569 $ 8,894
Accumulated other comprehensive income (440) (688)
--------- --------
Tier I (core) and tangible capital 8,129 8,206
Allowance for loan losses 175 172
--------- --------
Risk-based capital $ 8,304 $ 8,378
========= ========
-29-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 7 - REGULATORY MATTERS (CONTINUED)
At March 31, the actual capital levels of the Bank and the minimum
required levels are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
Amount Ratio Amount Ratio
------ --------- ------ ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets
-------------------------------------
Actual $ 8,304 51.91% $ 8,378 54.12%
For capital adequacy purposes 1,280 8.00% 1,238 8.00%
To be "well capitalized" 1,600 10.00% 1,548 10.00%
Tier I (Core) Capital to Risk-Weighted Assets
---------------------------------------------
Actual $ 8,129 50.82% $ 8,206 53.01%
For capital adequacy purposes 640 4.00% 619 4.00%
To be "well capitalized" 1,000 6.00% 929 6.00%
Tier I (Core) Capital to Adjusted Assets
----------------------------------------
Actual $ 8,129 26.55% $ 8,206 26.83%
For capital adequacy purposes 918 3.00% 917 3.00%
To be "well capitalized" 1,531 5.00% 1,529 5.00%
Tangible Capital to Adjusted Assets
-----------------------------------
Actual $ 8,129 26.55% $ 8,206 26.83%
For capital adequacy purposes 459 1.50% 459 1.50%
To be "well capitalized" N/A N/A N/A N/A
</TABLE>
NOTE 8 - INCOME TAX
Until 1996, thrift institutions were permitted a special bad debts
deduction limited generally to 8% of otherwise taxable income and subject
to certain limitations based on aggregate loans and savings account
balances at the end of the year. On August 20, 1996, the Small Business
Job Protection Act (the "Act") was signed into law. The Act eliminated the
percentage of taxable income bad debt deduction for thrift institutions
and requires that bad debts for federal income tax purposes be determined
based primarily on the experience method. The Act provides that bad debt
reserves accumulated after 1987 are subject to recapture over a maximum of
six years. The Act provides that bad debt reserves accumulated prior to
1988 be exempt from recapture. If the amounts that qualify as deductions
for federal income tax purposes are later used for purposes other than for
bad debt losses, they will be subject to federal income tax at the then
corporate rate. Retained income, at March 31, 2000 and 1999, included
approximately $696,000 (pre 1988 reserves) for which federal income tax
has not been provided.
-30-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 8 - INCOME TAX (CONTINUED)
The provisions for Federal income taxes consist of:
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999
------------ -------------
<S> <C> <C>
Current $ 294,044 $ 218,068
Deferred (159,022) 4,961
------------ ------------
Total $ 135,022 $ 223,029
============ ============
</TABLE>
The following temporary differences gave rise to the deferred tax (asset)
liability at:
<TABLE>
<CAPTION>
March 31,
2000 1999
------------ --------------
<S> <C> <C>
Deferred loan fees $ (14,018) $ (17,534)
Other income and expense recognized in the financial
statements on the accrual basis, but on the cash basis
for tax purposes 9,539 29,081
Bad debt reserve, net (23,647) (22,865)
RSP amortization (11,167) (18,424)
Depreciation 20,324 16,595
Others 3,052 3,876
------------ ------------
(15,917) (9,271)
Unrealized gains on available-for-sale securities 215,713 368,089
------------ ------------
Net deferred tax liability $ 199,796 $ 358,818
============ ============
</TABLE>
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 is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
2000 1999
------------ -------------
<S> <C> <C>
Tax at statutory rate (34%) $ 136,342 $ 208,214
Increase (decrease) in taxes resulting from:
Nondeductible ESOP compensation (282) 8,956
Other, net (1,038) 5,859
------------ ------------
Total $ 135,022 $ 223,029
============ ============
Effective rate 33.7% 36.4%
============ ============
</TABLE>
-31-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 9 - RETIREMENT PLAN
The Bank participates in the multi-employer Financial Institutions
Retirement Fund covering all full-time officers and employees completing
one year of service and attainment of age 21. Because the plan is a
multi-employer plan, plan information for the Bank separately is not
determinable. Pension expense, including administrative charges, for the
years ended March 31, 2000 and 1999, was $1,200 and $1,800, respectively.
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
During the year ended March 31, 1998, the Bank adopted an ESOP for the
benefit of officers and employees who have met certain eligibility
requirements related to length of service. An ESOP trust was created and
acquired 52,914 shares of common stock in the Company's initial public
offering, using proceeds of a loan obtained from the Company, which bears
interest at an annual rate of 8.25%. The loan, which is secured by shares
of stock purchased, calls for quarterly interest over a ten-year period
and annual principal payments of $52,914.
The Bank is scheduled to make quarterly contributions to the trust to
allow the trust to make the required interest payments and an annual
contribution to allow the trust to make the required principal payment.
Shares are released from collateral based upon the proportion of annual
principal payments made on the loan each year and allocated to qualified
employees. As shares are committed to be released from collateral based on
the terms of the loan, the Bank reports compensation expense based upon
the fair value of the shares, and the shares become outstanding for
earnings per share computations. Dividends paid on allocated ESOP shares
are recorded as a reduction of retained earnings. Dividends paid on
unallocated shares are recorded as compensation expense. Compensation
expense for the ESOP for the years ended March 31, 2000 and 1999, was
$55,759 and $81,171, respectively.
The following table represents the components of the ESOP shares at March
31:
2000 1999
---------- ----------
Allocated shares - -
Shares committed for allocation 16,245 11,007
Shares distributed - -
Unallocated (noncommitted) shares 36,669 41,907
---------- ----------
Total ESOP shares 52,914 52,914
========== ==========
Fair value of noncommitted shares $ 375,857 $ 518,599
========== ==========
-32-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 11 - RESTRICTED STOCK PLAN (RSP)
The Board of Directors adopted a RSP for directors and certain officers
and employees which was approved by stockholders at the annual meeting
held on July 16, 1998. The objective of this RSP is to enable the Bank to
retain its corporate officers, key employees, and directors who have the
experience and the ability necessary to manage these entities. Directors,
officers, and key employees who are selected by members of the
Board-appointed committee are eligible to receive benefits under the RSP.
Non-employee directors of the Bank serve as trustees for the RSP, and have
the responsibility to invest all funds contributed by the Bank to the
Trust created for the RSP.
In August, 1998, the Trust purchased, with funds contributed by the Bank,
shares of the common stock of which 23,185 shares were awarded to
directors and employees, and 3,272 shares remained unawarded. Directors,
officers, and employees who terminate their employment with the Bank shall
forfeit the right to any shares which were awarded but not earned, except
in the event of death, disability, retirement, or a change in control of
the Bank or Company. The Bank granted a total of 23,185 shares of common
stock on July 16, 1998, of which 4,637 became immediately vested under the
plan. Remaining shares become earned and non-forfeitable over a four-year
period on each anniversary date of the award beginning July 16, 1999. The
RSP shares purchased in the conversion initially will be excluded from
stockholders' equity. The Company recognizes compensation expense in the
amount of fair value of the common stock at the grant date, pro rata, over
the years during which the shares are earned and recorded as an addition
to stockholders' equity. Net compensation expense attributable to the RSP
amounted to $71,852 and $125,866, for the years ended March 31, 2000 and
1999, respectively.
NOTE 12 - STOCK OPTION PLAN
The Board of Directors adopted a Stock Option Plan for the directors,
officers, and employees which was approved by stockholders at the annual
meeting held on July 16, 1998. An aggregate of 66,142 shares of authorized
but unissued common stock of the Company was reserved for issuance under
the Stock Option Plan. The Company granted options to purchase 58,000
shares of common stock. The options are first exercisable over a five-year
period beginning July 16, 1998. The stock options typically have
expiration terms of ten years. The per share exercise price of a stock
option shall be, at a minimum, equal to the fair value of a share of
common stock on the date the option is granted. Proceeds from the exercise
of the stock options are credited to common stock for the aggregate par
value and the excess is credited to additional paid-in capital.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". This statement encourages, but
does not require the Company to recognize compensation expense for all
awards of equity instruments issued. The statement established a fair
value based method of accounting for stock-based compensation plans. The
standard applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities in
amounts based on the price of the entity's common stock or other equity
instruments. Statement No. 123 permits companies to continue to account
for such transactions under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," but requires disclosure of pro
forma net income and earnings per share as if the Company had applied the
new method.
-33-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 12 - STOCK OPTION PLAN (CONTINUED)
Under Accounting Principles Board Opinion No. 25, no compensation expense
has been recognized with respect to the options granted under the stock
option plans. Had compensation expense been determined on the basis of
fair value pursuant to Statement No. 123, net income and earnings per
share would have been reduced as follows:
March 31, March 31,
2000 1999
---------------- ----------------
Net income:
As reported $ 265,983 $ 389,366
Pro forma $ 194,427 $ 313,464
Basic earnings per share:
As reported $ .54 $ .71
Pro forma $ .40 $ .57
Diluted earnings per share:
As reported $ .53 $ .70
Pro forma $ .39 $ .56
The following table presents share data related to the Stock Option Plan:
<TABLE>
<CAPTION>
Shares Under Option
2000 1999
----------- ----------
<S> <C> <C>
Outstanding, beginning of year 58,000 -
Granted during the period - 58,000
Cancelled during the period - -
Exercised during the period - -
----------- ----------
Outstanding, end of period (option price of
$15.8125 per share) 58,000 58,000
=========== ==========
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Subsidiary Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of these instruments
reflect the extent of involvement the institution has in particular
classes of financial instruments.
-34-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments. The
Company 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 at March 31:
Contract Amount
2000 1999
------------- -------------
Commitments to originate loans:
Fixed rate $ 397,000 $ 467,000
Loans in process 381,000 343,000
------------- -------------
Total $ 778,000 $ 810,000
============= =============
The range of interest rates on fixed rate residential mortgage loan
commitments was 7.65% to 8.50% at March 31, 2000.
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 Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counter party. Collateral held consists primarily of single-family
residences.
Concentration of Credit Risk
----------------------------
The Subsidiary Bank's real estate loans and loan commitments are primarily
for properties located throughout Northern West Virginia. Repayment of
these loans is in part dependent upon the economic conditions in this
region. These loans are primarily at fixed interest rates.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair values
of financial instruments as disclosed herein:
Cash and Cash Equivalents: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
-35-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Investment Securities and Securities Held for Sale: For debt
securities and marketable equity securities held for investment
purposes and for sale, fair values are based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some
residential mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans. The fair value of other
types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit Liabilities: The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 389,000 $ 389,000 $ 1,874,000 $ 1,874,000
Securities available for sale 4,116,000 4,116,000 4,908,000 4,908,000
Securities held to maturity 238,000 240,000 351,000 357,000
Loans, net 25,389,000 24,972,000 24,320,000 24,902,000
Financial Liabilities:
Deposits 21,054,000 21,046,000 20,848,000 20,956,000
</TABLE>
NOTE 15 - CONVERSION AND REORGANIZATION
On December 5, 1996, the Board of Directors of the Association adopted the
Plan of Conversion pursuant to which the Association proposed to convert
from a federally-chartered mutual savings and loan to a
federally-chartered stock savings bank and concurrently form a unitary
savings and loan holding company.
As part of the conversion process, the Company was organized in March,
1997, at the direction of the Board of Directors of the Association for
the purpose of acquiring all of the capital stock to be issued by the Bank
in the Conversion. After approval by regulatory authorities and the
Association's members, the conversion was completed on June 25, 1997. The
Company became a unitary savings and loan company with its principal
assets being the capital stock of the Bank and a percentage of the
Conversion proceeds permitted to be retained. From the proceeds from the
sale of 661,428 shares of stock at $10.00 per share, $66,143 was allocated
to common stock based on a par value of $.10 per share and $6,127,984,
which is net of conversion costs of $420,153, was allocated to additional
paid-in capital.
-36-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 15 - CONVERSION AND REORGANIZATION (CONTINUED)
In accordance with regulations, at the time that the Association converted
from a mutual savings and loan to a stock savings bank, a portion of
retained earnings will be restricted by establishing a liquidation account.
The liquidation account will be maintained for the benefit of eligible
account holders who continue to maintain their accounts at the Bank after
the conversion. The liquidation account will be reduced annually to the
extent that eligible account holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.
NOTE 16 - ADVANCES FROM FEDERAL HOME LOAN BANK
As of March 31, 2000, the Bank had outstanding an advance from the Federal
Home Loan Bank (FHLB) of Pittsburgh of $900,000. The Bank maintains
various assets with a total collateral value of $20,689,000 to secure the
advance outstanding as of March 31, 2000. The advance is a
variable-interest obligation. The advance matures on September 22, 2000,
while interest payments are payable monthly on the outstanding principal
balance.
NOTE 17 - DIRECTOR RETIREMENT AGREEMENT
Effective May 7, 1998, the Company and Subsidiary Bank offered individual
retirement agreements with current directors of the Company and the Bank
having completed a minimum of fifteen years of service. Under the terms of
the agreement, retiring directors receive $1,200 for each year of past
service as a board member of the Bank or Association and the Company.
Retirement benefits were payable either in quarterly installments over a
five-year period commencing September 17, 1998, or in a lump sum with the
total benefit discounted at an annual rate of five percent (5%). Directors
executing the retirement agreement discontinued serving as active
directors to the Company and Bank on July 2, 1998.
At May 16, 1998, four directors executed retirement agreements. Based on
the past service of those directors involved, the Company took a pre-tax
charge of $94,000 in the first fiscal quarter of the year ending March 31,
1999, representing the present value of benefit payments.
-37-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 18 - 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. Unrealized
gains and losses on securities available for sale are the only components
of other comprehensive income (loss) that apply to the Bank.
2000 1999
------------- -----------
Before-tax amount $ (412,993) $ (968)
Tax effect 147,633 351
------------- ----------
Net-of-tax amount $ (265,370) $ (617)
============== ==========
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Effective June 25, 1997, active operations of Sistersville Bancorp, Inc.
were initiated with the approval of the stock conversion of the
Association and correspondent purchase of all the stock of the
wholly-owned Subsidiary Bank by the Company, which coincided with the
initial public offering of the Company stock. The condensed financial
statements of Sistersville Bancorp, Inc. are as follows:
BALANCE SHEET
MARCH 31, 2000 AND 1999
2000 1999
------------ ---------------
ASSETS
Deposits with Subsidiary Bank $ 240,260 $ 265,016
Investment in Subsidiary Bank 8,569,117 8,364,584
Investment securities available for sale 770,363 849,158
Loan receivable from ESOP - 529,140
Receivable from Subsidiary 41,220 71,190
Other assets 52,702 27,536
------------ --------------
TOTAL ASSETS $ 9,673,662 $ 10,106,624
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Payable from Subsidiary $ 212,365 $ 284,217
Other liabilities 37,711 30,835
Shareholders' equity 9,423,586 9,791,572
------------ --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,673,662 $ 10,106,624
============ ==============
-38-
<PAGE>
SISTERSVILLE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 20 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF INCOME
YEAR ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
INCOME
Interest $ 83,385 $ 91,113
OPERATING EXPENSES 52,196 65,382
-------------- -------------
Income before income tax and equity
in undistributed income of Subsidiary 31,189 25,731
INCOME TAX (12,491) (12,600)
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 247,285 376,235
-------------- -------------
NET INCOME $ 265,983 $ 389,366
============== =============
</TABLE>
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 265,983 $ 389,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of Subsidiary (247,285) (376,235)
Dividend received from Subsidiary 325,000 -
Investment amortization/accretion, net 241 2,098
ESOP amortization 55,759 88,256
RSP amortization 71,852 125,867
(Increase) decrease in other assets 14,880 8,575
Increase (decrease) in other liabilities (64,976) 284,776
--------------- -------------
Net cash provided by operating activities 421,454 522,703
-------------- -------------
INVESTING ACTIVITIES
Investment purchases (450,000) (852,500)
Investment maturities 500,000 1,460,000
-------------- -------------
Net cash provided by investing activities 50,000 607,500
-------------- -------------
FINANCING ACTIVITIES
Purchase of RSP shares - (410,084)
Purchase of treasury stock (322,527) (797,634)
Dividends paid (173,683) (185,028)
--------------- --------------
Net cash used in financing activities (496,210) (1,392,746)
--------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (24,756) (262,543)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 265,016 527,559
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 240,260 $ 265,016
============== =============
SUPPLEMENTAL DISCLOSURES
Income tax payments $ 31,200 $ 23,103
</TABLE>
-39-
<PAGE>
SISTERSVILLE BANCORP, INC. AND FIRST FEDERAL SAVINGS BANK
CORPORATE OFFICE INDEPENDENT AUDITORS
---------------- --------------------
726 Wells Street S. R. Snodgrass, A.C.
Sistersville, WV 26175 980 National Road
(304) 652-3671 Wheeling, WV 26003
SPECIAL COUNSEL
---------------
Malizia Spidi & Fisch, PC
One Franklin Square
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
TRANSFER AGENT
--------------
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
SISTERSVILLE BANCORP, INC. AND FIRST FEDERAL SAVINGS BANK
---------------------------------------------------------
BOARD OF DIRECTORS
------------------
Lester C. Doak, Chairman Ellen E. Thistle
David W. Miller Charles P. LaRue
Michael A. Melrose Stanley M. Kiser
SISTERSVILLE BANCORP, INC. OFFICERS
-----------------------------------
Stanley M. Kiser, President
Cynthia R. Carson, Vice-President & Corporate Secretary
Shelley R. Maxwell, Treasurer
FIRST FEDERAL SAVINGS BANK OFFICERS
-----------------------------------
Stanley M. Kiser, President & CEO
Cynthia R. Carson, Vice-President & Corporate Secretary
Barbara Vincent, Vice-President - Savings
Shelley R. Maxwell, Treasurer
P. Jane Fuchs, Cashier
Robert E. Coen, Branch Manager
Steven R. Reed, Assistant Branch Manager
Sistersville Bancorp, Inc.'s Annual Report on Form 10-KSB for the fiscal year
ended March 31, 2000, as filed with the Securities and Exchange Commission, is
available without charge to shareholders upon written request. The 2000 Annual
Meeting of Stockholders will be held on July 21, 2000, at 9:00 A.M., at the
offices of First Federal Savings Bank, 726 Wells Street, Sistersville, West
Virginia.
-40-
