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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
Commission File Number 0-16587
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South Branch Valley Bancorp, Inc.
----------------------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0672148
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 N. Main Street
Moorefield, West Virginia 26836
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(Address of principal executive offices) (Zip Code)
(304) 538-2353
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common
--------------
Title of Class
Indicate by check mark whether the registrant: (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K [229.405 of this chapter] is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $8,970,000
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate Market Value Based Upon Reported
of Voting Stock closing price on
---------------------- -------------------
$16,548,457 March 1, 1996
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 1, 1996
--------- --------------------------------
Common Stock ($2.50 par value) 378,510 shares
Documents Incorporated by Reference
The following lists the documents which are incorporated by reference in the
Annual Report Form 10-KSB, and the Parts and Items of the Form 10-KSB into which
the documents are incorporated.
Part of Form 10-KSB
Into Which Document
Document is Incorporated
--------- --------------------
South Branch Valley Bancorp, Inc. Part II
Annual Report to Shareholders
for the year ended December 31, 1995
Proxy Statement for the Annual Part III
Meeting April 16, 1996
This form 10-KSB is comprised of 85 pages. The exhibit index is located on page
15.
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SOUTH BRANCH VALLEY BANCORP, INC
FORM 10-KSB
INDEX
Page
Part I.
Item 1. Business............................... 4-6
Item 2. Properties............................. 6-7
Item 3. Legal Proceedings...................... 7
Item 4. Submission of Matters to a Vote
of Shareholders........................ 7
Part II.
Item 5. Market for the Registrant's Common
Stock and Related Shareholder Matters.. 8-9
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations and Related Statistical
Disclosures............................ 9
Item 7. Financial Statements .................. 9
Item 8. Changes in and Disagreements with Accounts
on Accounting and Financial Disclosure. 9
Part III.
Item 9. Directors and Executive Officers of the
Registrant............................. 10
Item 10. Executive Compensation................. 10
Item 11. Security Ownership of Certain Bene-
ficial Owners & Management............. 10
Item 12. Certain Relationships and Related
Transactions........................... 10
Item 13. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................ 11-12
Signatures............................................... 13-14
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PART I
ITEM 1. BUSINESS
- ----------------
Organized in 1987 as a West Virginia Corporation, South Branch Valley Bancorp,
Inc. ("SBVB"), is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. At the close of business on December 31, 1987,
SBVB merged its wholly owned subsidiary, South Branch Valley National Bank Inc.,
with South Branch Valley National Bank of Moorefield, a commercial bank with its
principal place of business located at 310 N. Main Street, Moorefield, West
Virginia. SBVB's business activities are conducted through the Bank. The Bank
presently accounts for substantially all of the consolidated assets, revenues
and net income of SBVB.
South Branch Valley National Bank
The South Branch Valley National Bank of Moorefield was originally chartered by
the Office of the Comptroller of the Currency on August 15, 1883. For purposes
of effecting the 1987 merger, South Branch Valley National Bank Inc. was
organized and chartered on October 2, 1987. The surviving Bank is currently
operating as South Branch Valley National Bank of Moorefield. The Bank is a full
service, FDIC insured, national banking association engaged in the commercial
and retail banking business. At December 31, 1995 the Bank employed
approximately 57 people.
The Bank offers a wide variety of banking services to its customers. The Bank
accepts deposits and has a night depository and an automated teller machine for
the convenience of its customers. The Bank offers its customers various deposit
arrangements with various maturities and yields, including non-interest bearing
and interest bearing demand deposits, savings deposits, time certificates of
deposit, Christmas Club accounts, and individual retirement accounts.
The Bank offers a full spectrum of lending services to its customers, including
commercial loans and lines of credit, residential real estate loans, consumer
installment loans and other personal loans. Loan terms, including interest
rates, loan to value ratios, and maturities are tailored as much as possible to
meet the needs of the borrower. Commercial loans are generally secured by
various collateral including commercial real estate, accounts receivable and
business machinery and equipment. Residential real estate loans consist
primarily of mortgages on the borrower's personal residence, and are typically
secured by a first lien on the subject property. Consumer and personal loans are
generally secured, often by first liens on automobiles, consumer goods or
depository accounts. A special effort is made to keep
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loan products as flexible as possible within the guidelines of prudent banking
practices in terms of interest rate risk and credit risk. Bank lending personnel
adhere to established lending limits and authorities based on each individual's
lending expertise and experience.
When considering loan requests, the primary factors taken into consideration by
the Bank are the cash flow and financial condition of the borrower, the value of
the underlying collateral, if any, and the character and integrity of the
borrower. These factors are evaluated in a number of ways including an analysis
of financial statements, credit reviews and visits to the borrower's place of
business.
The Bank also serves as trustee where appointed by a court or under a private
trust agreement. As trustee, the Bank invests the trust assets and makes
disbursements according to the terms and conditions of the governing trust
document and state and Federal law. For the year ended December 31, 1995, fees
generated from the operation of the Bank's Trust Department comprised less than
one percent of gross revenues earned during the year.
Supervision and Regulation
SBVB is a holding company subject to the provisions of the Bank Holding Company
Act of 1956 and is registered with the Board of Governors of the Federal Reserve
System. Under the Bank Holding Company Act, holding companies are prohibited,
with certain exceptions, from engaging in or acquiring the voting stock of any
company engaging in activities other than banking. However, the Bank Holding
Company Act authorizes the Board of Governors to permit holding companies to
engage in, and to acquire the stock of companies that engage in, activities
which the Board of Governors has determined to be so closely related to banking
as to be a proper incident thereto.
The Company's subsidiary bank is a national banking association chartered under
the laws of the United States. As such, the operations of the Bank are subject
to the regulations of the Comptroller of the Currency, the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation, and West
Virginia law. As a member of the Federal Deposit Insurance Corporation, the
Bank's deposits are insured as provided by law.
The primary supervisory authority over the Bank is the Comptroller of the
Currency who regularly examines such areas as reserves, loans, investments,
management practices, and other aspects of the Bank's operations.
On September 29, 1994, the Bank Holding Company Act was amended by the
Interstate Banking and Branch Efficiency Act of 1994 which authorizes interstate
bank acquisition anywhere in the country, effective one year after the date of
enactment and interstate branching by acquisition and consolidation, effective
June 1, 1997
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in those states that have not opted out by that date. The impact of this
amendment on the Company cannot be measured at this time.
The United States Congress and numerous states, including West Virginia, have
periodically considered and enacted legislation which has resulted in the
deregulation of banks and other financial institutions. As additional
legislation is enacted, certain geographical restrictions on banks and bank
holding companies or certain prohibitions against banks engaging in certain
non-banking activities may be modified or eliminated. Such legislation could
have the effect of placing the Bank in more direct competition with other
financial institutions.
The Bank's monetary policy is directly affected by the Federal Reserve Board
whose actions directly affect the money supply, and affect banks' lending
ability by increasing or decreasing the cost and availability of funds to banks.
In addition, deregulation of interest rates paid by banks on deposits and the
types of deposits that may be offered by banks have eliminated or altered
minimum balance requirements and rate ceilings on various types of time deposit
accounts. The effect of these actions and the deregulation of interest rates
have increased banks' costs of funds and have made the profitability of banks
more sensitive to fluctuations in market rate conditions.
Competition
The Bank competes primarily with seven commercial banks over a four county area:
Hardy County, Hampshire County, Grant County, and Pendleton County.
Additionally, Farmers' Home Administration and the Federal Land Bank are
competitors for loans. According to the latest Sheshunoff Bank Quarterly, dated
September 1995, the Bank had assets representing approximately 16% of total
assets for the seven commercial banks serving its primary market area.
It can be expected that with the liberalization of the branch banking laws in
West Virginia, additional financial institutions may compete with the Bank. The
Bank has taken an aggressive posture with the establishment of the Mathias,
Franklin and the new Petersburg branches, and intends to continue vigorously
competing for its share of the market within its service area.
ITEM 2. PROPERTIES
- -------------------
In 1911 the Bank acquired the property now known as the "Old Bank" building
located at 107 South Main Street, Moorefield, West Virginia. In 1963 the Bank
acquired property adjacent to that same building which is now being used as a
parking lot. In December 1994 the Bank acquired property on Winchester Avenue
that adjoins the Old Bank building and the parking lot. The completion of the
renovation and addition to the main office has allowed the Bank's bookkeeping
and operations departments to move into the main
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office. Therefore, the Winchester Ave. parcel as well as the property located
at 107 S. Main St. will be offered for sale.
In 1974 the Bank acquired 5.82 acres of land located on the west side of U.S.
Route 220 of Main Street in Moorefield, West Virginia. On June 29, 1976 the Bank
received the approval of the Office of the Comptroller of the Currency to change
the location of its main office to this site. This is the present location of
the Bank's principal banking offices. In April 1994 the Bank acquired
approximately one acre of real estate on the west side of U.S.
Route 220 adjoining the main office.
On April 5, 1983 the Bank acquired property located in the town of Mathias, West
Virginia. Since December 28, 1984 the Bank has operated its Mathias branch bank
from this site.
By deeds dated May 31, 1986 and July 14, 1986 the Bank acquired two parcels of
land located on the east side of U.S. Route 220 in the town of Franklin, West
Virginia. On October 3, 1986 the Bank received preliminary approval of the
Office of the Comptroller of the Currency to establish a branch bank at this
location. The Bank's Franklin branch was opened for banking operations on
January 1, 1987.
During 1995, the Bank acquired a parcel of land and branch office located on the
north side of U.S. Route 220 in the town of Petersburg, West Virginia. This
property was purchased from Blue Ridge Bank and began operating as a branch of
South Branch Valley National Bank on November 15, 1995.
At December 31, 1995, various parcels of real estate with an aggregate book
value of $40,355 are maintained by the Bank as a result of foreclosure
proceedings on loans collateralized by such real estate.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Bank is involved in various pending legal proceedings, all of which are
regarded by management as normal litigation incident to the business of banking
and are not expected to have a materially adverse effect on the business or
financial condition of the Bank or the Holding Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
- --------------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth quarter of
the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The Company acts as its own registrar and transfer agent. Its shares are not
publicly traded on any exchange or over the counter market. Shares of the
Company's common stock are occasionally bought and sold by private individuals,
firms or corporations. In many instances, the Company does not have knowledge of
the purchase price or the terms of the purchase. No definitive records of bids
and ask or sale prices are available. However, the average sales price for the
shares that have voluntarily been reported to the Company in the last 60 days is
$43.72 per share.
The following sets forth quarterly cash dividends declared per share for the
prior two years.
Quarterly Common Stock Dividends
--------------------------------
Quarter 1995 1994
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First $ - $ -
Second .33 .30
Third - -
Fourth .35 .31
The approximate number of stockholders of record for SBVB's common stock as of
March 1, 1996 was 619.
Dividends paid by SBVB to its stockholders are based on dividends it receives
from its subsidiary bank. The ability of the Bank to pay dividends to SBVB is
subject to certain limitations of the national banking laws. In general, these
limitations provide that no bank can pay dividends if the total of all
dividends, including any proposed dividend declared by a bank in any calendar
year, exceeds net income for that year when combined with net income for the
preceding two years, less dividends for all three years. This restriction may be
waived if the approval of the Office of the Comptroller of the Currency is
obtained for such distribution. The Comptroller of the Currency may also
prohibit a bank's dividend payments if such payment is deemed to be an unsafe or
unsound banking practice. The foregoing summary is not a complete statement of
applicable limitations and is qualified by reference to Sections 56 and 60 of
Title 12 of the United States Code.
In the past it has been the Company's normal procedure to declare a smaller cash
dividend in June of each year and then a larger dividend in December. The
Company has been increasing the amount of the June cash dividend until both of
the semi-annual cash dividends are approximately equal. In 1994 the Company
increased the June dividend from $.18 per share in 1993 to $.30 per share. This
substantial increase concluded this plan. It is the intention of management and
the Board of Directors to continue to pay dividends on the same schedule during
1996. However, future cash dividends will depend on the earnings, financial
condition and the
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business of the Bank as well as general economic conditions; however, management
is not presently aware of any reason why dividend payments should not continue.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS AND RELATED STATISTICAL DISCLOSURES
- -------------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 4 through 16 of the 1995 Annual Report is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The report of the independent auditors and consolidated financial statements are
included on pages 17 through 36 of the 1995 Annual Report and are incorporated
herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
There has been no Form 8-KSB filed within 24 months prior to the date of the
most recent financial statements reporting a change of accountants and/or
reporting disagreements on any matter of accounting principle or financial
statement disclosure.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The current Board of Directors of the Company is comprised of the 14 individuals
listed on pages 4 through 7 of the Proxy Statement. Directors of the Company are
divided into three classes and serve a staggered three (3) year term. All
current directors of the Company are also directors of the Company's subsidiary,
South Branch Valley National Bank ("Bank"). Directors of the Bank serve for a
one (1) year term. Information concerning Directors' fees, committees, meetings
and attendance can be found on pages 9 through 11 of the Proxy Statement.
Information about the executive officers of the Company can be found in the
Proxy Statement on pages 7 and 8. The Proxy Statement is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
A table showing executive compensation and information about the Company's
profit sharing and thrift plan and the ESOP can be found on pages 11 and 12 of
the Proxy Statement which has been incorporated herein by reference. Directors'
compensation is discussed on page 9 of the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
A table showing the amount of common stock beneficially owned by each director
and by all executive officers and directors of the Company and the Bank as a
group of sixteen (16) persons can be found on pages 8 and 9 of the Proxy
Statement which has been incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information concerning transactions with directors, officers and principal
shareholders can be found on page 14 of the Proxy Statement which has
been incorporated herein by reference.
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ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
Page Number
in Annual
Report to
Shareholders
(a) 1. Financial Statements:
Message to Shareholders and Friends 2
Financial Highlights 3
Management's Discussion and Analysis 4
Report of Independent Certified
Public Accountants 17
The following consolidated financial statements
to be included in Part II, Item 7, are
incorporated herein by reference from the
South Branch Valley Bancorp, Inc. Annual Report
to Shareholders, a copy of which accompanies
this report:
Consolidated Balance Sheets -
December 31, 1995 and 1994 18
Consolidated Statements of Income -
Years Ended December 31, 1995,
1994 and 1993 19
Consolidated Statements of Shareholders'
equity for the Years Ended
December 31, 1995, 1994 and 1993 20
Consolidated Statements of Cash Flows -
For Year Ended December 31, 1995,
1994 and 1993 21
Notes to Consolidated Financial Statements 22
Shareholder Information 37
Directors 38
Operating Officers 39
Employees 40
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Item 13. Financial Statement Schedules (cont'd) Page(s)
Form 10-KSB
-----------
(a) 2. Financial Statement Schedules
All other schedules for which provision is
made in the applicable regulations of the
Commission have been omitted as the schedules are
not required under the related instructions,
or are inapplicable, or the information required
thereby is set forth in the financial statements
or the notes thereto.
(a) 3. Exhibits Required to be Filed by Item 601 of
Regulation S-B and 14(c) of Form 10-KSB
See index to exhibits 15
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
registrant during the fourth quarter of the
year ended December 31, 1995.
(c) Exhibits
See Item 13(a) 3. above
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
South Branch Valley Bancorp, Inc.
(registrant)
By:/s/Oscar M. Bean 3/22/96 By:/s/H. Charles Maddy, III 3/22/96
----------------------------- ---------------------------------
Oscar M. Bean, Date H. Charles Maddy, III Date
Chairman of the Board President
By: /s/Russell F. Ratliff, Jr. 3/22/96
----------------------------------
Russell F. Ratliff, Jr. Date
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Title Date
----- ----
/s/ Oscar M. Bean Director March 22, 1996
- ---------------------------
Oscar M. Bean
/s/ Donald W. Biller Director March 22, 1996
- ---------------------------
Donald W. Biller
/s/ James M. Cookman Director March 22, 1996
- ---------------------------
James M. Cookman
Director March 22, 1996
- ---------------------------
John W. Crites
/s/ Thomas J. Hawse, III Director March 22, 1996
- ---------------------------
Thomas J. Hawse, III
/s/ Phoebe F. Heishman Director March 22, 1996
- ---------------------------
Phoebe F. Heishman
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SIGNATURES (cont'd)
/s/ Gary L. Hinkle Director March 22, 1996
- ---------------------------
Gary L. Hinkle
/s/ Jeffrey E. Hott Director March 22, 1996
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Jeffrey E. Hott
/s/ H. Charles Maddy, II Director March 22, 1996
- ---------------------------
H. Charles Maddy, III
/s/ Harold K. Michael Director March 22, 1996
- ---------------------------
Harold K. Michael
/s/ Mary Ann Ours Director March 22, 1996
- ---------------------------
Mary Ann Ours
/s/ Russell F. Ratliff, Jr. Director March 22, 1996
- ---------------------------
Russell F. Ratliff, Jr.
/s/ Harry C. Welton, Jr. Director March 22, 1996
- ---------------------------
Harry C. Welton, Jr.
/s/ Renick C. Williams Director March 22, 1996
- ---------------------------
Renick C. Williams
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INDEX TO EXHIBITS
Page(s)
Exhibit Number Description Form 10-KSB
-----------
(3) Articles of Incorporation and By-laws
*(a) Articles of Association of South
Branch Valley National Bank *
*(b) Articles of Incorporation of South
Valley Bancorp, Inc., dated
March 3, 1987. *
*(c) By-laws of South Branch Valley
Bancorp, Inc. *
(10) Material Contracts 16
(13) Annual Report to Shareholders 24
(20) Proxy Statement 65
(21) Subsidiaries of the Registrant
Subsidiaries of South Branch Valley
Bancorp, Inc., at December 31, 1995 80
(23) Consent of Independent Certified 82
Public Accountants
(27) Financial Data Schedule 84
*Incorporated herein by reference to South Branch Valley Bancorp,
Inc.'s registration statement on Form S-4 dated September 1, 1987,
Registration No. 33-16947.
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E X H I B I T (10)
MATERIAL CONTRACTS
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17-85
Exhibit 10
EXECUTIVE BENEFIT AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into on this 26th. day of January,
1996, by and among SOUTH BRANCH VALLEY BANCORP, INC., a West Virginia
corporation and bank holding company (the "Company"), and its wholly-owned
subsidiary, SOUTH BRANCH VALLEY NATIONAL BANK, a national banking association
with its principal offices located in Moorefield, West Virginia (the "Bank") and
H. CHARLES MADDY, III (the "Executive").
WHEREAS, the Executive is currently employed by the Company and its
wholly owned subsidiary, as President and Chief Executive Officer; and,
WHEREAS, the Company, as the sole shareholder of the Bank, and the
Board of Directors of the Company recognizes that the Executive's contribution
to the growth, success, and continued operation of the Company and the Bank has
been substantial; and,
WHEREAS, the Company believes it is in the best interest of the
Company and the Bank to grant the Executive a level of security to preserve key
management and to assure fair consideration of any affiliation opportunities
that may arise.
NOW THEREFORE, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, the Company, the Bank
and Executive contract and agree as follows:
OPERATION AND INTENT OF AGREEMENT. This Agreement is intended to
-----------------------------------
provide for the payment by the Company and its subsidiary of certain benefits to
Executive if a change of control of the Company or its subsidiary occurs. This
Agreement also provides for the payment by the Company and/or the Bank of
certain benefits to Executive if the Executive elects at his option to terminate
his employment within six months after a change of control or if Executive's
employment with the Company or the Bank is terminated within twenty-four (24)
months after a change of control of the Company or the Bank and such termination
was not for Good Cause, as that term is defined herein.
1. DEFINITIONS. The following definitions in addition to any
-----------
terms otherwise defined herein, shall apply to designated phrases used in this
Agreement.
a. "Change of Control" means (i) a change of ownership of the
Company and/or its wholly owned subsidiary which would have to be reported to
the Securities and Exchange Commission as a Change of Control, including but not
limited to the acquisition by any "person" and/or entity as defined by
securities regulations and law, of direct or indirect "beneficial ownership", as
defined, of twenty five percent (25%) or more of the combined voting power of
the Company's then outstanding
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18-85
securities; or (ii) the failure, at any time during a period of three (3)
consecutive years, of individuals who at the beginning of such period constitute
the Board for any reason, to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been approved by at least two-thirds of the directors at the beginning of
the period, or (iii) the consummation of a "Business Combination" as defined in
the Company's Articles of Incorporation.
b. "Salary" means the Executive's average of full earnings
reported on IRS Form W-2 for the two full year periods immediately prior to the
date of the consummation of the Change of Control or for two full year periods
immediately preceding the Date of Termination, whichever is greater.
c. "Good Cause" includes (i) termination for continued poor
work performance after written notice of and reasonable opportunity to correct
deficiencies; (ii) termination for behavior outside or on the job which affects
the ability of management of the Company or Bank or co-workers to perform their
jobs and which is not corrected after reasonable written warning; (iii)
termination for failure to devote reasonable time to the job which is not
corrected after reasonable warning; and (iv) any other significant deficiency in
performance by the Executive which is not corrected after reasonable warning.
d. "Disability" means total and permanent disability to
perform the duties of the President and CEO from day to day in Executive's said
capacity.
e. "Retirement" means termination of employment by the
Executive in accordance with Company's (or its successor's) retirement plan,
including early retirement as approved by the Board of Directors.
f. "Good Reason" means: (a) a Change of Control in the
Company; and (b) a decrease in the total amount of the Executive's base salary
below its level in effect immediately prior to the date of consummation of the
Change of Control, without the Executive's prior written consent; or (c) a
material reduction in the importance of the Executive's job responsibilities or
assignment of job responsibilities inconsistent with the Executive's
responsibility prior to the Change of Control without the Executive's prior
written consent; or (d) a geographical relocation of the Executive to an office
more than 20 miles from the Executive's location at the time of the Change of
Control or the imposition of travel requirements inconsistent with those
existing prior to the Change of Control without the Executive's prior written
consent;or (e) failure of Company to obtain express assumption of this Agreement
by its successor; or (f) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination required in this
agreement; or (g) any removal of Executive from, or failure to re-elect
Executive to any of the Executive's positions with Company or Bank immediately
prior to a Change of Control (except in connection with termination of
Executive's employment for
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19-85
Good Cause, death, Disability or Retirement) without Executive's prior written
consent.
g. "Wrongful Termination" means termination of the Executive's
employment by the Company or its affiliates for any reason other than at
Executive's option, Good Cause or the death, Disability or Retirement of
Executive prior to the expiration of twenty-four (24) months after consummation
of the Change of Control.
2. TERMINATION WITHOUT REASON AT EXECUTIVE'S OPTION; LUMP-SUM
----------------------------------------------------------------
PAYMENT. The Executive may terminate his employment with the Company or its
- -------
affiliates WITHOUT REASON AT HIS OPTION by giving written notice of termination
within six (6) months of consummation of any Change of Control; provided that
notice shall be given at least thirty (30) days prior to the effective time for
termination. In such event, Executive shall be entitled to receive a lump sum
payment equal to 75% of his Salary.
3. TERMINATION FOR GOOD REASON OR FOR CAUSE; NOTICE OF TERMINATION.
-----------------------------------------------------------------
The Executive may terminate his employment with the Company or its affiliates
for Good Reason. In the event of a Change of Control, the Company or Bank may
terminate Executive's employment only for Good Cause within twenty-four (24)
months after consummation of Change of Control. Any termination of the
Executive's employment by the Company or Bank or by the Executive shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon,
which shall set forth in reasonable detail the facts and circumstances claimed
to provide a basis for the termination of the Executive's employment under the
provision so indicated, and which shall further specify an effective date of
termination. For purposes of this Agreement, "Date of Termination" shall mean
the date on which Notice of Termination is to be effective. Compensation shall
be determined in accordance with paragraph 5(b) below.
4. RESIGNATION OF EXECUTIVE. Executive may resign for any reason
--------------------------
within a six (6) month period after a Change of Control is consummated.
Executive may resign for Good Reason within a twenty-four (24) month period,
after a Change of Control is consummated, by giving thirty (30) days prior
written notice of his resignation. Compensation shall be determined in
accordance with paragraph 5 below; provided, however, that in the event of
termination of the Executive due to his resignation (for reasons other than Good
Reason or the exercise of the six-month option set forth in paragraph 2, above)
Executive shall only be entitled to compensation through his last day of
employment.
5. COMPENSATION OF EXECUTIVE UPON TERMINATION.
------------------------------------------
a. Except as hereinafter provided and as provided in
paragraph 2 above, if the Executive terminates his employment with the Company
or Bank at his option, without reason as provided above, the
<PAGE>
20-85
Company hereby agrees to pay the Executive a cash payment equal to the
Executive's Salary, as defined at 1(b), multiplied by 75%.
b. If the Executive terminates his employment with the Company
or Bank for Good Reason or the Company terminates the Executive's employment in
a manner constituting Wrongful Termination, the Company hereby agrees to pay the
Executive a lump-sum cash payment equal to the Executive's Salary, on a monthly
basis, multiplied by the number of months between the Date of Termination and
the date that is twenty-four (24) months after the date of consummation of
Change of Control. In the event calculation of such payment would result in a
lump-sum cash payment to Executive less than 50% of his Salary, then Executive
shall be entitled to receive a cash payment equal to 50% of his Salary.
c. For the year in which Wrongful Termination or a termination
for Good Cause occurs, the Executive will be entitled to receive his reasonable
share of the Company's cash incentive bonuses and employee benefit plan
contributions, if any, allocated in accordance with existing policies and
procedures and authorized by the Board of Directors, except that, the amount of
the Executive's cash incentive bonus shall not be reduced due to the Executive
not being actively employed for the full year.
d. The Executive will continue to participate, without
discrimination, for the number of months between the Date of Termination and the
date that is twenty-four (24) months after the date of the consummation of the
Change of Control in benefit plans (such as retirement, disability and medical
insurance) maintained after any Change of Control for employees, in general, of
the Company, or any successor organization, provided the Executive's continued
participation is possible under the general terms and conditions of such plans.
In the event the Executive's participation in any such plan is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would have been entitled had his
participation not been barred. However, in no event will the Executive receive
from the Company the employee benefits contemplated by this section if the
Executive receives comparable benefits from any other source.
e. In the event the Executive becomes entitled to any payments
or benefits under this Agreement or any benefit plan or program of the Company,
if any such payments or benefits will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (or any
similar tax that may hereinafter be imposed), the Company shall pay to the
Executive an additional amount or amounts (each, a "Gross Up Payment"), such
that the net amount or amounts retained by the Executive, after deduction of any
Excise Tax on any of the above-described payments or benefits and any federal,
state and local income tax and excise tax upon payment provided for by this
section, shall be equal to the amount of such payments or benefits prior to the
imposition of such Excise Tax.
<PAGE>
21-85
6. OTHER EMPLOYMENT. The Executive shall not be required to mitigate
----------------
the amount of any payment provided for in this Agreement by seeking other
employment. The amount of any payment provided for in this Agreement shall not
be reduced by any compensation earned or benefits provided (except as set forth
in the final sentence of paragraph 5.d above) as the result of employment by
another employer after the Date of Termination.
7. RIGHTS OF COMPANY PRIOR TO THE CHANGE OF CONTROL. This Agreement
------------------------------------------------
shall not affect the right of the Company or Bank to terminate the Executive, or
to reduce the salary or benefits of the Executive, with or without Good Cause,
prior to any Change of Control; provided, however, any termination or reduction
in salary or benefits which takes place after discussions have commenced which
result in a Change of Control shall be presumed (without clear and convincing
evidence to the contrary) to be a violation of this Agreement which entitled the
Executive to the benefits hereof, so that any termination by Company shall be
deemed to be a Wrongful Termination, and all references in this Agreement to
"Salary" shall be deemed to mean the Salary, as defined herein, based on the
earnings Executive would have had immediately prior to any reduction thereof.
8. SUCCESSORS; BINDING AGREEMENT, EXCLUSIVE REMEDY.
-----------------------------------------------
a. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company or the Bank, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason.
b. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executives devisee, legatee, or other
designee or, if there by no such designee, to the Executive's estate.
c. This Agreement shall represent the exclusive and only
remedy of Executive with respect to the Salary and other benefits provided for
in this Agreement in the event a termination occurs after a Change of Control.
The Company, Bank, and the Executive agree that it is impossible to determine
with any reasonable accuracy the amount of prospective damages to either party
should Executive be terminated or
<PAGE>
22-85
terminate his employment during the term of this Agreement. The Company and the
Executive agree that the payment provided herein is reasonable and not a
penalty, based upon the facts and circumstances of the parties at the time of
entering this Agreement, and with due regard to future expectations.
9. ARBITRATION. In the event of any dispute between the Bank, the
-----------
Executive and the Holding Company under this Agreement which the Bank, the
Executive and the Company are unable to resolve, including but not limited to
whether a Change of Control of the Bank has occurred or whether Executive's
employment was terminated for Good Cause, the dispute shall be submitted to
arbitration at the request of the Executive. In requesting arbitration the
Executive shall so notify the other parties in writing and shall specify the
question or questions to be arbitrated. Within ten (10) days after receipt of
such notification, the Bank and the Company shall select one arbitrator and the
Executive shall select one arbitrator and shall give the name and address
thereof to the other parties. Within ten (10) days after the selection of the
second arbitrator, the two arbitrators shall promptly select a third arbitrator.
In the event one party fails to select an arbitrator within the required time
period, the arbitrator who has been selected may select a disinterested
arbitrator and the two arbitrators may proceed to resolve the dispute. The panel
of arbitrators shall schedule a hearing on the disputed issues to be held within
thirty (30) days of the last day of the hearing. The decision of a majority of
the arbitrators shall be final and conclusive on the Executive, the Company and
the Bank.
10. NOTICE. For the purposes of this Agreement, notices, demands and
------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise specified)
mailed by the United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Mr. H. Charles Maddy, III
-------------------------
P. O. Box 79
-------------------------
Old Fields, West Virginia 26845
-------------------------------
If to the Company:
South Branch Valley Bancorp, Inc.
---------------------------------
310 North Main Street
---------------------------------
Moorefield, West Virginia 26836
---------------------------------
or such other address as any party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
11. MISCELLANEOUS. No provision of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and another executive officer of
the Company as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach
<PAGE>
23-85
by the other hereto of, or compliance with, any condition or provisions of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
12. VALIDITY. The invalidity or unenforceability of any provision
--------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force and
effect.
13. LEGAL FEES. Company shall pay all reasonable legal fees
----------
and expenses incurred by Executive in enforcing any right or benefit provided
by this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed as of the day and year first above written.
SOUTH BRANCH VALLEY BANCORP, INC.
By: /s/Oscar M Bean
--------------------------------------
Its: Chairman of the Board
--------------------------------
SOUTH VALLEY NATIONAL BANK
By: /s/ Oscar M. Bean
--------------------------------------
Its: Chairman of the Board
--------------------------------
Attest:
/s/ Phoebe Fisher Heishman
- --------------------------
/s/ H. Charles Maddy, III
-----------------------------------------
Executive
24-85
E X H I B I T (13)
SOUTH BRANCH VALLEY BANCORP,INC ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1995
<PAGE>
25-85
1995
ANNUAL REPORT
-------------------
SOUTH BRANCH VALLEY
BANCORP, INC.
-----------------------------------------------------
CONTENTS
Message to Stockholders and Friends 2
Financial Highlights 3
Management's Discussion and Analysis 4
Independent Auditor's Report 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 19
Consolidated Statements of Shareholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
Shareholder Informations 37
Directors of South Branch Valley Bancorp, Inc. 38
Operating Officers of the Bank 39
Employees 40
ANNUAL MEETING
Two O'Clock p.m.
April 16, 1996
South Branch Valley National Bank
310 North Main Street
Moorefield, West Virginia
MAILING ADDRESS
South Branch Valley Bancorp, Inc.
P.O. Box 680
Moorefield, West Virginia 26836
<PAGE>
26-85
[South Branch Valley Bancorp, Inc. logo]
P.O. Box Box 680 Moorefield, West Virginia 26836 (304) 538-6301
- ------------------------------------------------------------------------
To Our Stockholders and Friends:
It is a pleasure to present the 1995 Consolidated Annual Report of South
Branch Valley Bancorp, Inc. The past year was our eighth consecutive year of
realizing record earnings which totaled $1,320,000. This earnings strength
allowed us to increase our dividends over 1994 by 11.5% to $.68 per share. Total
assets and total capital also reached record levels. Once again, our entire
staff is to be commended for their excellent performance in responding as team
players to the increasing demands of a competitive industry.
One of the highlights of 1995 was the completion of the expansion of our
main building in Moorefield. It truly is a state of the art facility and has
many features which will contribute to our ability to better serve you.
The opening of our new branch office in Petersburg was also on our list of
achievements for the year. We are pleased to welcome the staff and customers of
that facility and look forward to many years of service to the Petersburg
community.
As we meet the challenges 1996 is sure to present, we want to thank you
for your continued support. Your comments and suggestions are always welcome and
your friendship is appreciated.
/s/ OSCAR M. BEAN /s/ H. CHARLES MADDY, III
Oscar M. Bean H. Charles Maddy, III
Chairman of the Board President
2
<PAGE>
27-85
FINANCIAL HIGHLIGHTS
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARY
DIVIDENDS PER SHARE EARNINGS PER SHARE
[CHART GOES HERE] [CHART GOES HERE]
1991 $0.37 1991 $2.48
1992 $0.42 1992 $2.97
1993 $0.48 1993 $3.06
1994 $0.61 1994 $3.26
1995 $0.68 1995 $3.49
1995 1994 % CHANGE
--------- --------- --------
FOR THE YEAR (IN THOUSANDS)
Net Income $ 1,320 $ 1,245 6.02%
Net Interest Income 4,542 4,487 1.23%
- ------------------------------------------------------------------------------
YEAR END BALANCES (IN THOUSANDS)
Total Assets $113,118 $96,634 17.06%
Total Loans 71,458 64,217 11.28%
Total Deposits 100,046 84,978 17.73%
Total Equity 11,329 9,378 20.80%
- ------------------------------------------------------------------------------
PER SHARE DATA
Earnings $ 3.49 $ 3.26 7.06%
Book Value $ 29.93 $ 24.78 20.78%
Cash Dividends $ 0.68 $ 0.61 11.48%
- ------------------------------------------------------------------------------
RATIOS
Return on Average Assets 1.29% 1.29% 0.00%
Return on Average Equity 12.83% 13.24% -3.17%
Shareholders' Equity to Total Assets 10.01% 9.70% 3.20%
- ------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS TOTAL ASSETS
(before cumulative effect of accounting change)
[GRAPH GOES HERE] [GRAPH GOES HERE]
1991 1.14% 1991 $ 84.0
1992 1.22% 1992 $ 90.1
1993 1.27% 1993 $ 94.6
1994 1.29% 1994 $ 96.6
1995 1.29% 1995 $113.1
3
<PAGE>
28-85
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant items of
income and expense presented in South Branch Valley Bancorp, Inc.'s, and its
wholly owned subsidiary, South Branch Valley National Bank's statements of
income for the three years ended December 31, 1995. Also presented are
applicable discussions of changes in financial position together with analysis
of the rate sensitivity of the components of the Company's statement of
condition.
RESULTS OF OPERATIONS
Net income for the three years ended December 31, 1995, 1994, and 1993, was
$1,320,000, $1,245,000, and $1,170,000 respectively. Return on average total
assets for the year ended December 31, 1995 was 1.29% compared to 1.29% in 1994
and 1.27% in 1993. On a per share basis, net income was $3.49 in 1995 compared
to $3.26 in 1994 and $3.06 in 1993. Dividends per share totaled $.68 in 1995
compared to $.61 in 1994 and $.48 per share in 1993.
NET INTEREST INCOME
The major component of the Company's net earnings is net interest income, which
is the excess of interest earned on earning assets over the interest expense for
sources of funds. Net interest income is affected by changes in volume,
resulting from growth and alterations of the balance sheet's composition, as
well as fluctuations in interest rates and maturities of sources and uses of
funds. Bank management seeks to maximize net interest income through management
of the balance sheet. This is accomplished by determining the optimal product
mix with respect to yields on assets and costs of funds in light of projected
economic conditions, while maintaining portfolio risk at an acceptable level.
Included in interest and fees on loans are loan fees earned of $180,000,
$175,000, and $185,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Interest income on securities which are exempt from Federal tax typically
provide a favorable impact on earnings through reduction of the Company's tax
liability. Consequently, for purposes of this discussion, interest income on tax
exempt securities has been adjusted to reflect the tax benefit derived, after
consideration of nondeductible interest expense related to these obligations,
assuming an effective tax rate of 34.0 percent for all the years presented. The
tax equivalent adjustment results in an increase of $41,000 in interest income
for 1995, $45,000 for 1994 and $66,000 for 1993.
Table I presents, for the periods indicated, the changes in interest income and
expense attributable to (a) changes in volume (changes in volume multiplied by
prior period rate) and (b) changes in rate (change in rate multiplied by prior
period volume). Changes in interest income and expense attributable to both rate
and volume have been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each. Net interest
income on a fully tax equivalent basis, average balance sheet amounts, and
corresponding average rates for the years 1993, 1994 and 1995 are presented in
Table II.
Net interest income, as adjusted, totaled $4,583,000, $4,531,000 and $4,586,000
for the years ended December 31, 1995, 1994 and 1993, respectively. Net interest
margin, which recognizes earning asset growth by expressing net interest income
as a percentage of total average earning assets, decreased from 5.2% in 1993 to
4.9% in 1994 and to 4.7% in 1995. Depressed loan yields and increased interest
expense resulting from a competitive local market continued to negatively impact
the Company's net interest margin. In 1995, the Company's yield on interest
earning assets declined 30 basis points, while the cost of interest bearing
liabilities rose 70 basis points. See Table
4
<PAGE>
29-85
II for a detailed analysis of the Company's net interest yield on earning
assets.
The spread between interest earning assets and interest bearing liabilities
could continue to contract, thus negatively impacting the Company's net interest
income in 1996. See the "Liquidity and Interest Rate Sensitivity" section for
further discussion of the impact of changes in market interest rates on the
Company.
TABLE I: CHANGES IN INTEREST MARGIN DUE TO CHANGES IN RATE AND VOLUME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 VERSUS 1994 1994 VERSUS 1993
---------------------------------------- ----------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: DUE TO CHANGE IN:
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST BEARING ASSETS
Loans $ 486 $ 309 $ 795 $ 576 $ (430) $ 146
Securities
Taxable 23 (1) 22 (8) (129) (137)
Tax-exempt 39 (33) 6 (50) (30) (80)
----------- ------------ ----------- ----------- ----------- -----------
Total securities 62 (34) 28 (58) (159) (217)
----------- ------------ ----------- ----------- ----------- -----------
Interest bearing deposits
with other banks 9 (1) 8 (24) (11) (35)
Federal funds sold (14) 20 6 (30) 15 (15)
----------- ------------ ----------- ----------- ----------- -----------
Total interest earning
assets 543 294 837 464 (585) (121)
----------- ------------ ----------- ----------- ----------- -----------
INTEREST BEARING
LIABILITIES
Interest bearing demand
deposits 72 113 185 18 10 28
Savings deposits (22) 34 12 2 (20) (18)
Time deposits 152 397 549 56 (154) (98)
Short-term borrowings 33 1 34 22 -- 22
Long-term borrowings 5 -- 5 -- -- --
----------- ------------ ----------- ----------- ----------- -----------
Total interest
bearing liabilities 240 545 785 98 (164) (66)
----------- ------------ ----------- ----------- ----------- -----------
Net interest income $ 303 $ (251) $ 52 $ 366 $ (421) $ (55)
=========== ============ =========== =========== =========== ===========
</TABLE>
5
<PAGE>
30-85
TABLE II: AVERAGE DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST EARNINGS & EXPENSES, AND AVERAGE RATES
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------- --------------------------------- --------------------------------
(IN THOUSANDS AVERAGE EARNINGS/ YIELD/ AVERAGE EARNINGS/ YIELD/ AVERAGE EARNINGS/ YIELD/
OF DOLLARS) BALANCES EXPENSE RATE BALANCES EXPENSE RATE BALANCES EXPENSE RATE
--------------------------------- --------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning
assets:
Loans, net of
unearned interest $ 66,148 $ 6,590 10.0% $ 61,175 $ 5,795 9.5% $ 55,283 $ 5,649 10.2%
Securities
Taxable 26,059 1,651 6.3% 25,703 1,629 6.3% 25,814 1,766 6.8%
Tax-exempt 2,898 205 7.1% 2,390 199 8.3% 2,963 279 9.4%
Interest bearing
deposits with
other banks 1,997 137 6.9% 1,859 129 6.9% 2,194 164 7.5%
Federal Funds sold 756 49 6.5% 1,051 43 4.1% 1,883 58 3.1%
---------- ---------- --------- ---------- ---------- -------- ---------- ---------- ---------
Total interest
earning assets 97,858 8,632 8.8% 92,178 7,795 8.5% 88,137 7,916 9.0%
Noninterest
earning assets:
Cash & due
from banks 2,157 2,694 2,685
Bank premises
& equipment 2,084 1,298 1,151
Other assets 1,052 1,032 1,362
Allowance for
loan losses (930) (990) (914)
---------- ---------- ----------
Total assets $ 102,221 $ 96,212 $ 92,421
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing
liabilities:
Interest bearing
demand deposits $ 17,825 $ 641 3.6% $ 15,579 $ 456 2.9% $ 14,957 $ 428 2.9%
Regular deposits 13,084 446 3.4% 13,757 434 3.2% 13,694 452 3.3%
Time deposits 51,492 2,901 5.6% 48,486 2,352 4.9% 47,380 2,450 5.2%
Short-term
borrowings 910 56 6.2% 377 22 5.8% 9 -- 3.2%
Long-term
borrowings 85 5 5.9% -- -- -- -- -- --
---------- ---------- --------- ---------- ---------- -------- ---------- ---------- ---------
Total interest
bearing liabilities 83,396 4,049 4.9% 78,199 3,264 4.2% 76,040 3,330 4.4%
Noninterest bearing
liabilities & share-
holders' equity
Demand deposits 7,819 8,009 7,421
Other liabilities 716 606 402
Shareholders'
equity 10,290 9,398 8,558
---------- ---------- ----------
Total liabilities &
shareholders'
equity $ 102,221 $ 96,212 $ 92,421
========== ========== ==========
NET INTEREST EARNINGS $ 4,583 $ 4,531 $ 4,586
========== ========== ==========
NET INTEREST YIELD ON
EARNING ASSETS 4.7% 4.9% 5.2%
========= ======== =========
</TABLE>
6
<PAGE>
31-85
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings in order to
maintain the allowance for loan losses at a level which is considered adequate
in relation to the estimated risk inherent in the loan portfolio. The provision
for loan losses was $55,000, $120,000, and $205,000 for the years ended December
31, 1995, 1994, and 1993, respectively. Charge-offs, net of recoveries, for 1995
were $188,000 compared to $32,000 and $145,000 in 1994 and 1993. See the "Risk
Elements" section for further discussion of the allowance for loan losses.
OTHER INCOME
The following table details the components of non-interest income earned by the
Company for the years ended December 31, 1995, 1994 and 1993 in thousands of
dollars, as well as the percentage increase (decrease) in each of the components
over the prior year.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1995 1994 1993
--------------------- ---------------------- ---------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Insurance commissions $ 110 (0.1%) $ 111 88.1% $ 59
Trust department income 5 (68.8%) 16 100.0% 8
Service fees 211 1.0% 209 28.2% 163
Securities gains (losses) (1) 50.0% (2) (106.3%) 32
Gain (loss) on sales of other assets -- 100.0% (21) (170.0%) 30
Other 54 86.2% 29 (46.3%) 54
--------- --------- --------
$ 379 10.8% $ 342 ( 1.2%) $ 346
========= ========= =========
</TABLE>
Non-interest income earned in 1995 increased $37,000 or 10.8%. A substantial
portion of this increase is attributable to the Company having incurred $21,000
in losses on sales of foreclosed properties in 1994. Also contributing to this
increase is a reduction in teller cash shortages and increased credit card
merchant fees.
OTHER EXPENSES
The following table itemizes the primary components of non-interest expense in
thousands of dollars for the three years ended December 31, 1995 by dollar
amount and percentage variance from the preceding year.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1995 1994 1993
---------------------- ---------------------- ----------
PERCENT PERCENT
AMOUNT CHANGE AMOUNT CHANGE AMOUNT
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,557 7.5% $ 1,448 (1.2%) $ 1,465
Net occupancy expense of premises 127 7.6% 118 2.6% 115
Equipment rentals, depreciation
and maintenance 162 3.2% 157 (21.1%) 199
Federal deposit insurance premiums 100 (51.2%) 205 (1.9%) 209
Other expense 920 5.6% 871 (0.8%) 878
---------- ---------- ---------
$ 2,866 2.4% $ 2,799 (2.3%) $ 2,866
========== ========== ==========
</TABLE>
7
<PAGE>
32-85
Non-interest expense decreased $67,000 or 2.4% from 1994 to 1995. Salaries and
employee benefits increased 7.5% from $1,448,000 in 1994 to $1,557,000 in 1995.
Net occupancy expense of premises totaled $127,000 for 1995 as compared to
$118,000 for 1994 for a 7.6% increase. Equipment rentals, depreciation and
maintenance increased 3.2% from $157,000 in 1994 to $162,000 in 1995. Insurance
premiums decreased approximately $105,000 or 51.2% from 1994 to 1995. This
decrease was a result of the FDIC's reduction of the premiums for the best
capitalized banks effective July 1, 1995 from 23 cents per $100 of deposits to 4
cents per $100 of deposits. With the new branch in Petersburg and the new
addition just recently completed at the Moorefield main office, management
expects increased non-interest expenses in 1996 being offset somewhat by the
reduction in the FDIC insurance premiums.
INCOME TAX EXPENSE
Income tax expense (benefit) for the three years ended December 31, 1995, 1994,
and 1993 totaled $680,000, $665,000, and $625,000, respectively. The differences
resulted from growth in taxable income. See Note 10 of the Company's financial
statement for further information relating to the Company's income taxes.
CHANGES IN FINANCIAL POSITION
Table III illustrates the average composition of major balance sheet
classifications of the Company expressed in terms of dollar amounts and as a
percentage of total assets for each of the three years ended December 31, 1995,
1994, 1993.
Total average assets for the year ended December 31, 1995 were $102,221,000, an
increase of 6.2% over 1994's average of $96,212,000. Total average assets
increased $3,791,000 or 4.1% from 1993 to 1994.
Total average interest earning assets, expressed as a percentage of total
assets, decreased slightly to 95.7% for 1995 as compared to 95.8% for 1994 and
95.3% for 1993.
The Company's asset growth is funded primarily by growth in its customer deposit
accounts. Average total deposits grew approximately 5.1% during 1995 which was
consistent with the growth experienced by the Bank's primary market area and
with management's goals of consistent, controlled deposit growth. See Table II
for average deposit balances by type and their related interest expense. Also
see Note 8 of the financial statements for a maturity distribution of
certificates of deposit and Individual Retirement Accounts in denominations of
$100,000 or more as of December 31, 1995.
LOAN PORTFOLIO
Total net loans averaged $66,148,000 in 1995 and comprised 64.7% of total
average assets compared to $61,175,000 or 63.6% of total average assets during
1994. This increase in the dollar volume of loans is primarily attributable to a
slightly increased loan demand experienced in 1995 as well as a more aggressive
strategy taken by management to increase loan volume.
8
<PAGE>
33-85
The following table depicts loan balances at December 31, 1995 and 1994 by types
along with their respective percentage of total loan volume.
(IN THOUSANDS OF DOLLARS)
1995 1994
-------------------- ---------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- --------- --------- ---------
Commercial, financial,
and agricultural $ 18,875 26.4% $17,833 27.7%
Real estate--mortgage 36,980 51.7% 33,315 51.9%
Real estate--construction 103 .2% 251 .4%
Installment loans to individuals
(net of unearned interest) 14,957 20.9% 12,396 19.3%
Other 543 .8% 422 .7%
--------- -------- --------- -------
Total loans (net of
unearned interest) $ 71,548 100.0% $ 64,217 100.0%
======== ========
Less allowance for loan losses 860 993
--------- ---------
Loans, net $ 70,598 $ 63,224
========= =========
See Note 5 to the consolidated financial statements for the Company's loan
maturities as of December 31, 1995.
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities which are disclosed but not reflected in the
accompanying financial statements. These commitments and contingent liabilities
include various guarantees and commitments to extend credit and standby letters
of credit. At December 31, 1995, 1994, and 1993, such commitments approximated
$4,463,000, $3,445,000, and $3,552,000, respectively. The Bank does not
anticipate any material losses as a result of these commitments.
Interest on installment loans is recognized using methods which approximate the
simple interest method depending on the term of the loan and provisions of State
law on the date the loan was originated. For commercial and real estate mortgage
loans, interest income is computed using the simple interest method.
Certain loan fees and direct loan costs are recognized as income or expense when
incurred, whereas Statement Number 91 of the Financial Accounting Standards
Board requires that such fees and costs be deferred and amortized as adjustments
of the related loan's yield over the contractual life of the loan. The effects
of this departure from generally accepted accounting principles are not
significant to the Company's consolidated financial statements.
RISK ELEMENTS
As more fully explained in Notes 1 and 6 of the financial statements, the
Company adopted Statements of Financial Accounting Standards Nos. 114 and 118
(SFAS Nos. 114 and 118) "Accounting by Creditors for Impairment of a Loan" and
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosure", respectively, effective January 1, 1995. Under SFAS Nos. 114 and
118, a loan is impaired when, based on current information and events, it is
probable that all amounts due will not be collected in accordance with the
contractual terms of the specific loan agreement. Impaired loans, other than
certain large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment, are reported at the present value of expected future
cash flows discounted using the loan's original effective interest rate or,
alternatively, at the loan's observable market price, or at the fair value of
the loan's collateral if the loan is collateral dependent. The adoption of SFAS
Nos. 114 and 118 did not significantly impact the Company's financial position
or results of operations during 1995.
9
<PAGE>
34-85
SOUTH BRANCH VALLEY BANCORP, INC. AND SUBSIDIARY
TABLE III: AVERAGE BALANCES (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- --------------------- ----------------------
AVERAGE AVERAGE AVERAGE
BALANCES PERCENT BALANCES PERCENT BALANCES PERCENT
---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net of unearned interest $ 66,148 64.7% $ 61,175 63.6% $ 55,283 59.8%
---------- ---------- --------- ---------- -------- ---------
Securities
Taxable 26,059 25.5% 25,703 26.7% 25,814 27.9%
Tax-exempt 2,898 2.8% 2,390 2.5% 2,963 3.2%
---------- ---------- --------- ---------- -------- ---------
Total 28,957 28.3% 28,093 29.2% 28,777 31.1%
---------- ---------- --------- ---------- -------- ---------
Interest bearing deposits with
other banks 1,997 2.0% 1,859 1.9% 2,194 2.4%
Federal Funds sold 756 0.7% 1,051 1.1% 1,883 2.0%
---------- ---------- --------- ---------- -------- ---------
Total interest earning assets 97,858 95.7% 92,178 95.8% 88,137 95.3%
Noninterest earning assets:
Cash & due from banks 2,157 2.1% 2,694 2.8% 2,685 2.9%
Bank premises & equipment 2,084 2.1% 1,298 1.3% 1,151 1.3%
Other assets 1,052 1.0% 1,032 1.1% 1,362 1.5%
Allowance for loan losses (930) (0.9%) (990) (1.0%) (914) (1.0%)
---------- ---------- --------- ---------- -------- ---------
Total assets $ 102,221 100.0% $ 96,212 100.0% $ 92,421 100.0%
========== ========== ========= ========== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits $ 17,825 17.4% $ 15,579 16.2% $ 14,957 16.2%
Regular deposits 13,084 12.8% 13,757 14.3% 13,694 14.8%
Time deposits 51,492 50.4% 48,486 50.4% 47,380 51.3%
Short-term borrowings 910 0.9% 377 0.4% 9 --
Long-term borrowings 85 0.1% -- -- -- --
---------- ---------- --------- ---------- --------- --------
83,396 81.6% 78,199 81.3% 76,040 82.3%
Noninterest bearing liabilities:
Demand deposits 7,819 7.6% 8,009 8.3% 7,421 8.0%
Other liabilities 716 0.7% 606 0.6% 402 0.4%
---------- ---------- --------- ---------- --------- --------
Total liabilities 91,931 89.9% 86,814 90.2% 83,863 90.7%
Shareholders' equity 10,290 10.1% 9,398 9.8% 8,558 9.3%
---------- ---------- --------- ---------- --------- --------
Total liabilities and
shareholders' equity $ 102,221 100.0% $ 96,212 100.0% $ 92,421 100.0%
========== ========== ========== ========== ========= ========
</TABLE>
10
<PAGE>
35-85
The following table presents a summary of restructured or nonperforming loans
for each of the three years ended December 31, 1995, 1994 and 1993.
DECEMBER 31,
---------------------------------
1995 1994 1993
------- -------- -------
(IN THOUSANDS OF DOLLARS)
Nonaccrual loans $ 538 $ 675 $ 530
Accruing loans past due 90 days or more 260 585 19
Restructured loans 230 366 367
------- -------- -------
Total $ 1,028 $ 1,626 $ 916
======= ======== =======
Percentage of total loans net
of unearned interest 1.4% 2.5% 1.5%
======= ======== =======
If interest on non-accrual loans had been accrued, such income would have
approximated $37,000, $6,000 and $41,000 for the years ended December 31, 1995,
1994 and 1993, respectively. Beginning in 1994, $622,000 of these non-accrual
loans were reclassified as cash non- accrual and as interest was paid, it was
taken into income. Interest income previously accrued on non-accrual loans and
included as a part of the Company's interest income is not material.
The Company's subsidiary Bank, on a quarterly basis, performs a comprehensive
loan evaluation which encompasses the identification of all potential problem
credits which are included on an internally generated watch list. The
identification of loans for inclusion on the watch list is facilitated through
the use of various sources, including past due loan reports, previous internal
and external loan evaluations, classified loans identified as part of regulatory
agency loan reviews and reviews of new loans representative of current lending
practices within the Bank. Once this list is reviewed to ensure it is complete,
the credit review department reviews the specific loans for collectibility,
performance and collateral protection. In addition, a grade is assigned to the
individual loans utilizing internal grading criteria, which is somewhat similar
to the criteria utilized by the Bank's primary regulatory agency. Based on the
results of these reviews, specific reserves for potential losses are identified
and the allowance for loan losses is adjusted appropriately. While there may be
some loans or portions of loans identified as potential problem credits which
are not specifically identified as either non-accrual or accruing loans past due
90 or more days, they are considered by management to be insignificant to the
overall disclosure and are, therefore, not specifically quantified within the
Management's Discussion and Analysis.
In addition, management feels these additional loans do not represent or result
from trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources, nor do they
represent material credits about which management is aware of any information
which would cause the borrowers to not comply with the loan repayment terms.
Specific reserves are allocated to the non-performing loans based on the
quarterly evaluation of expected loan loss reserve requirements as determined by
Bank management. In addition, a portion of the reserve is determined through the
use of loan loss experience factors which do not provide for identification of
specific potential problem loans. As noted above, some of the loans, which are
not deemed significant, are included in the watch list of potential problem
loans and have specific reserves allocated to them.
At December 31, 1995, the Company's allowance for loan loss was $860,000 or 1.2%
of total loans compared to $993,000 or 1.6% at December 31, 1994.
11
<PAGE>
36-85
TABLE IV: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- -------------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------ ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 221 26.4% $ 364 27.7% $ 301 19.6%
Real estate 355 51.9% 488 52.3% 475 63.6%
Installment 229 20.9% 138 19.3% 126 16.1%
Other 5 0.8% 3 0.7% 3 0.7%
------------ ---------- ----------- ---------- ----------- ----------
$ 810 100.0% $ 993 100.0% $ 905 100.0%
============ ========== =========== ========== =========== ==========
</TABLE>
At December 31, 1995, the Company had approximately $40,000 in other real estate
owned which was obtained as the result of foreclosure proceedings. Management
does not anticipate any material losses on any of the properties currently held
in other real estate.
LOAN CONCENTRATIONS
The Company's subsidiary bank grants commercial, residential and consumer loans
to customers primarily located in Hardy, Grant, Hampshire and Pendleton Counties
of West Virginia. Although the Bank strives to maintain a diverse loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is indirectly dependent upon the poultry industry.
As of December 31, 1995 and 1994, the Bank had direct extensions of credit used
to build and operate poultry houses totaling approximately $5,873,000 and
$6,835,000, respectively. These loans are generally structured to be repaid over
periods ranging from 15 to 20 years, however, most also contain balloon
provisions which serve to require each loan's renewal every 1 to 5 years or are
written with an adjustable interest rate feature. The security for these loans
generally consists of liens on the land, buildings and equipment associated with
each poultry house.
The Bank evaluates the credit worthiness of each of its customers on a
case-by-case basis and the amount of collateral it obtains is based upon
management's credit evaluation. Although, by definition, loan concentrations are
more susceptible to deteriorating economic conditions affecting the specific
areas and industries to which the concentrations are tied, the Company does not,
as of this writing, anticipate losses in this identified area that would be
materially different from the losses experienced in the loan portfolio taken as
a whole.
SECURITIES
Effective January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). Under SFAS NO. 115, management determines the
appropriate classification of debt and equity securities at the time of purchase
and re-evaluates such classifications as of each reporting date. Debt
securities are classified as held to maturity when the bank has the positive
intent and ability to hold the securities to maturity. Securities classified as
held to maturity are carried at amortized cost. Debt securities not classified
as held to maturity and marketable equity securities are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported as a separate component of equity, net of
income taxes. The Bank does not have a trading account.
In 1995, the Company reassessed the classifications of its securities and
transferred $3.4 million (at amortized cost) of securities from held to maturity
to available for sale as permitted by the Financial Accounting Standards Board's
Special Report "A Guide to Implementation of Statement
<PAGE>
37-85
115 on Accounting for Certain Investments in Debt and Equity Securities".
See Note 4 of the financial Statement for additional details regarding this
transfer)
At December 31, 1995, the fair value of the Bank's available for sale portfolio
totaled $31,480,580, which was 101.8% of the amortized cost. The increase in
fair value of the portfolio during 1995 is attributed to the significant
decrease in interest rates in the economy during the same period. See Note 4 of
the accompanying financial statements for details of amortized cost, the fair
values, unrealized gains and losses as well as the security classifications by
type. Available for sale securities comprised approximately 27.8% of total
assets at December 31, 1995.
At December 31, 1995, the Bank did not own securities of any one issuer that
exceeded ten percent of shareholders' equity. The maturity distribution of the
securities portfolio (excluding equity securities) at December 31, 1995,
together with the weighted average yields for each range of maturity are
summarized in Table V. The stated average yields are actual yields and are not
stated on a tax equivalent basis.
TABLE V: INVESTMENT SECURITY MATURITY ANALYSIS (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
SECURITIES AVAILABLE WITHIN BUT WITHIN BUT WITHIN AFTER
FOR SALE ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
--------------------- ---------------------- --------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,508 6.49% $ 6,323 5.87% $ - - - - $ - - - -
U.S. Government agencies
and corporations 1,166 5.88% 10,210 6.45% 3,491 6.97% 1,680 7.07%
Mortgage backed securities:
U.S. Government agencies
and corporations 139 7.52% 1,081 6.82% 1,116 6.80% 45 8.31%
State and political
subdivisions 477 6.76% 750 5.48% 1,983 5.12% 115 7.35%
Other - - - - 498 6.23% - - - - - - - -
---------- ---------- --------- ----------
Total $ 3,290 6.36% $ 18,862 6.23% $ 6,590 6.38% $ 1,840 7.12%
========== ========== ========= ==========
</TABLE>
SHORT-TERM BORROWINGS
The Bank has a line of credit from the Federal Home Loan Bank of Pittsburgh.
Management uses this line to make additional funds available at competitive
rates. Funds acquired through this program are reflected on the consolidated
balance sheet as short-term borrowings.
The Federal Home Loan Bank borrowings is a product known as Flexline. It is a
line of credit limited to 10% of the Bank's assets and is subject to annual
renewals that are effective the first business day of the new year. The line
bears interest at the Bank's overnight cost of funds rate, and may be paid off
at any time without prepayment penalty. The Bank's borrowing rate is subject to
change daily. The line of credit is secured by a blanket lien on all unpledged
and unencumbered assets of the Bank.
The following summarizes the Company's short-term borrowings, consisting of
Federal funds purchased and borrowings from the Federal Reserve and the Federal
Home Loan Bank, for the years ended December 31, 1995 and 1994.
1995 1994
------------ ------------
Amount outstanding at end of period $ - - $ 1,700,000
Interest rate at end of year - - 6.6%
Maximum month-end amount outstanding $ 2,000,000 $ 1,700,000
Average amount outstanding during the year $ 910,000 $ 376,707
Weighted average interest rate for the year 6.2% 5.8%
13
<PAGE>
38-85
LONG-TERM BORROWINGS
In November 1995, the Bank obtained from the Federal Home Loan Bank of
Pittsburgh a long term fixed rate loan in the amount of $250,000 with an
interest rate of 6.04 percent. In December 1995, the Bank applied for and
received an additional $500,000 at an interest rate of 5.96 percent. These loans
mature in seven years with interest payable monthly. Funds acquired through this
program are reflected on the consolidated balance sheet as long-term borrowings.
These funds are part of the Federal Home Loan Bank's Community Investment
Program. The Bank used these funds to fund fixed rate, long term mortgage loans.
LIQUIDITY
Liquidity in commercial banking can be defined as the ability to satisfy
customer loan demand and meet deposit withdrawals while maximizing net interest
income. The Company's primary sources of funds are deposits and principal and
interest payments on loans. Additional funds are provided by maturing
securities. The Bank uses ratio analysis to monitor the changes in its sources
and uses of funds so that an adequate liquidity position is maintained. At
December 31, 1995, cash , due from banks and Federal funds sold totaled
approximately $4,353,000 or 3.8% of total assets. Additionally, securities and
interest bearing deposits with other banks maturing within one year approximated
$3,872,000 or 3.4% of total assets. Management believes that the liquidity of
the Company is adequate and foresees no demands or conditions that would
adversely affect it.
ASSET/LIABILITY MANAGEMENT
The principal objective of asset/liability management is to minimize interest
rate risk, which is the vulnerability of the Company's net interest income to
changes in interest rates and manage the ratio of interest rate sensitive assets
to interest rate sensitive liabilities within specified maturities or repricing
dates. The Company's actions in this regard are taken under the guidance of the
Subsidiary Bank's Asset/Liability Management Committee, which is comprised of
members of the Bank's senior management and members of the Board of Directors.
The Bank's Asset/Liability Management Committee is actively involved in
formulating the economic assumptions that the Bank uses in its financial
planning and budgeting process and establishes policies which control and
monitor the Bank's sources, uses and prices of funds.
Some amount of interest rate risk is inherent and appropriate to the banking
business. Several techniques are available to monitor and control the level of
interest rate risk. The Bank regularly performs modeling to project the
potential impact of future interest rate scenarios on net interest income.
Through such simulation analysis, interest rate risk is maintained within
established policy limits. Based upon the present mix of assets and liabilities
and management's assumptions with respect to growth and repricing, variation in
the Bank's net interest income in 1996 is anticipated to remain within these
policy limits given a 200 basis point increase or decrease in market interest
rates.
Another means of analyzing an institution's interest rate risk is by monitoring
its interest rate sensitivity "gaps". An asset or liability is said to be
interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity "gap" is defined
as the difference between interest earning assets and interest bearing
liabilities maturing or repricing within a given time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets. During a period of falling interest rates, a positive gap
would tend to adversely affect net interest income, while a negative gap would
tend to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income while a negative gap would tend to affect net interest income
adversely.
14
<PAGE>
39-85
Table VI below sets forth at December 31, 1995 the Company's interest rate
sensitivity gaps within the one year time horizon computed based upon
contractual repricings and maturities. As presented in the table, the Company
has a one year cumulative negative interest sensitivity gap of $38.0 million (or
36% of total earning assets). However, included within the one year time period
are $35.6 million of interest bearing demand and savings deposits which on a
contractual basis are immediately repriceable. However, the actual repricing of
these deposits tends to lag well behind movements in market interest rates.
Accordingly, the sensitivity of such core deposits to changes in market interest
rate may differ significantly from their contractual terms. If interest bearing
demand and savings deposits are assumed to reprice beyond the one year time
horizon, the Company's one year cumulative interest rate sensitivity gap at
December 31, 1995 would be a negative $2.2 million or just 2.1% of interest
earning assets.
TABLE VI: ASSET & LIABILITY RATE SENSITIVITY ANALYSIS, DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MATURING OR REPRICING WITHIN
-----------------------------------
0-90 91-180 181-365 TOTAL
DAYS DAYS DAYS 1 YEAR
<S> <C> <C> <C> <C>
Interest Earning Assets:
Loans $ 10,819 $ 9,036 $ 7,440 $ 27,295
Taxable Securities 0 754 2,059 2,813
Tax Exempt Securities 0 300 177 477
Other 90 96 396 582
--------- ---------- ---------- ----------
Total Earning Assets $ 10,909 $ 10,186 $ 10,072 $ 31,167
========= ========== ========== ==========
Interest Bearing Liabilities:
Certificates of Deposit $ 10,068 $ 10,362 $ 12,964 $ 33,394
Savings Deposits 15,731 - - - - 15,731
Interest Bearing Demand Deposits 20,028 - - - - 20,028
--------- ---------- ---------- ----------
$ 45,827 $ 10,362 $ 12,964 $ 69,153
--------- ---------- ---------- ----------
Static Interest Sensitivity Gap $(34,918) $ (176) $ (2,892) $ (37,986)
========= ========== ========== ==========
Cumulative Gap $ (34,918) $ (35,094) $(37,986)
========= ========== ==========
Gap/Total Earning Assets (35.7%)
==========
Gap/Total Earning Assets (excluding savings & demand deposits) (2.1%)
==========
</TABLE>
NOTE: Although this schedule shows a net liability sensitive position during a
one year time horizon of $38 million (or 35.7% of earning assets), savings
accounts and interest bearing demand deposits will not necessarily immediately
reprice as interest rates fluctuate. If these accounts are excluded from the
calculation, the Company is in a net asset sensitive position of $2 million or
2.1% of interest earning assets.
CAPITAL RESOURCES
The capital position of South Branch Valley Bancorp, Inc. has shown consistent
improvement during the past three years. Stated as a percentage of total assets,
the Company's equity ratio was 10.0%, 9.7%, and 9.6% at December 31, 1995, 1994
and 1993, respectively. These increases can be attributed to a strong earnings
base during the past three years combined with controlled asset growth. The
Company's subsidiary bank's risk weighted Tier I, total, and leverage capital
ratios were approximately 14.0%, 15.2% and 9.2%, respectively, at December 31,
1995 and are well within Federal regulatory guidelines.
15
<PAGE>
40-85
Management has established an objective to maintain a minimum 8.0%
rate of internal capital growth as a primary means of ensuring capital adequacy
within regulatory guidelines. The percent of return on average equity multiplied
by the percent of earnings retained equals the internal capital growth rate
percentage. The following table illustrates this relationship.
RELATIONSHIP BETWEEN SIGNIFICANT
FINANCIAL RATIOS
1995 1994 1993
---------- --------- --------
Return on average equity 12.8% 13.3% 13.7%
times
Earnings retained 80.5% 81.4% 84.3%
equals
Internal capital growth rate 10.3% 10.8% 11.5%
Cash dividends rose 11.5% to $.68 in 1995. It is the intention of management and
the Board of Directors to continue to pay dividends on the same schedule during
1996. However, future cash dividends will depend on the earnings, financial
condition and the business of the Bank as well as general economic conditions;
however, management is not presently aware of any reason dividend payments
should not continue.
Dividends paid by the Bank are subject to restrictions by banking regulations.
The most restrictive provision requires approval by the regulatory agency if
dividends declared in any year exceed the year's net income, as defined, plus
the retained net profits of the two preceding years. During 1996, the net
retained profits available for distribution to South Branch Valley Bancorp as
dividends without regulatory approval are approximately $1,862,000, plus net
income of the interim periods through the date of declaration.
RETURN ON EQUITY AND ASSETS
The following table summarizes ratios considered to be significant indicators of
the Company's profitability and financial condition for the three years ended
December 31, 1995.
1995 1994 1993
---------- --------- --------
Return on average assets 1.29% 1.29% 1.27%
Return on average equity 12.83% 13.24% 13.67%
Dividend pay-out ratio 19.50% 18.65% 15.69%
Equity to assets ratio 10.01% 9.70% 9.60%
EFFECTS OF CHANGING PRICES
The results of operations and the financial condition of the Company has been
presented based on historical cost, unadjusted for the effects of inflation.
Virtually all of the Company's assets and liabilities are monetary in nature.
Only a relatively small portion of the Company's assets, such as premises and
equipment, are not monetary in nature. Consequently, most of the Company's
assets are repriced to reflect the effects of inflation on a more frequent basis
than non-banking industries.
16
<PAGE>
41-85
INDEPENDENT AUDITOR'S REPORT
[LOGO GOES HERE]
To the Board of Directors
South Branch Valley Bancorp,Inc.
Moorefield, West Virginia
We have audited the accompanying consolidated balance sheets of South Branch
Valley Bancorp, Inc., and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years ended December 31, 1995, 1994 and 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 South Branch Valley
Bancorp, Inc., and subsidiary as of December 31, 1995 and 1994, and the results
of their operations and cash flows for the years ended December 31, 1995, 1994
and 1993, in conformity with generally accepted accounting principles.
ARNETT & FOSTER
/s/ ARNETT & FOSTER
Charleston, West Virginia
January 12, 1996
17
<PAGE>
42-85
SOUTH BRANCH VALLEY BANCORP, INC., AND SUBSIDIARY
- -------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,191,647 $ 2,152,919
Interest bearing deposits with other banks 2,134,919 1,733,700
Federal funds sold 2,161,745 - -
Securities held to maturity (estimated fair value 1994 $3,105,322) - - 3,165,939
Securities available for sale 31,480,580 23,388,488
Loans, less allowance for loan losses of $859,681 and
$993,023, respectively 70,598,398 63,224,441
Bank premises and equipment, net 3,180,351 1,587,965
Accrued interest receivable 983,841 883,058
Other assets 386,377 497,810
----------------- ----------------
TOTAL ASSETS $ 113,117,858 $ 96,634,320
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest bearing $ 7,832,774 $ 8,047,012
Interest bearing 92,213,562 76,930,853
----------------- ----------------
Total deposits 100,046,336 84,977,865
Short-term borrowings - - 1,700,000
Long-term borrowings 750,000 - -
Other liabilities 992,862 578,315
----------------- ----------------
Total liabilities 101,789,198 87,256,180
----------------- ----------------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value, authorized 600,000 shares, issued 382,625 956,562 956,562
Capital surplus 685,534 685,534
Retained earnings 9,512,884 8,450,114
Less cost of shares acquired for the treasury
1995 and 1994, 4,115 shares (166,970) (166,970)
Net unrealized gain (loss) on securities 340,650 (547,100)
----------------- ----------------
Total shareholders' equity 11,328,660 9,378,140
----------------- ----------------
Total liabilities and shareholders' equity $ 113,117,858 $ 96,634,320
---------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE>
43-85
South Branch Valley Bancorp, Inc., and Subsidiary
- -------------------------------------------------
Consolidated Statements of Income
For The Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------------- -------------- --------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 6,589,530 $ 5,795,517 $ 5,649,599
Interest and dividends on securities:
Taxable 1,650,905 1,629,643 1,765,952
Tax-exempt 164,410 153,951 212,677
Interest on interest bearing deposits with other banks 136,696 128,561 164,323
Interest on Federal funds sold 49,297 43,322 57,546
---------------- -------------- --------------
Total interest income 8,590,838 7,750,994 7,850,097
---------------- -------------- --------------
Interest expense
Interest on deposits 3,987,850 3,242,307 3,329,503
Interest on short-term borrowings 55,994 21,772 296
Interest on long-term borrowings 5,095 -- --
---------------- -------------- --------------
Total interest expense 4,048,939 3,264,079 3,329,799
---------------- -------------- --------------
Net interest income 4,541,899 4,486,915 4,520,298
Provision for loan losses 55,000 120,000 205,000
---------------- -------------- --------------
Net interest income after provision
for loan losses 4,486,899 4,366,915 4,315,298
---------------- -------------- --------------
Other income (expense)
Insurance commissions 110,352 111,140 59,145
Trust department income 5,052 16,218 8,008
Service fees 211,379 208,439 163,355
Securities gains (losses) (1,546) (1,607) 32,482
Gain (loss) on sales of other assets 277 (21,391) 29,490
Other 53,481 29,114 53,652
---------------- -------------- --------------
Total other income 378,995 341,913 346,132
---------------- -------------- --------------
Other expenses
Salaries and employee benefits 1,557,108 1,447,838 1,465,481
Net occupancy expense 126,315 118,479 114,725
Equipment rentals, depreciation and maintenance 162,277 157,315 199,051
Federal deposit insurance premiums 100,174 204,642 209,315
Other 920,188 871,162 877,513
---------------- -------------- --------------
Total other expenses 2,866,062 2,799,436 2,866,085
---------------- -------------- --------------
Income before income tax expense 1,999,832 1,909,392 1,795,345
Income tax expense 679,676 664,802 625,059
---------------- -------------- --------------
Net income $ 1,320,156 $ 1,244,590 $ 1,170,286
================ ============== ==============
Earnings per common share $ 3.49 $ 3.26 $ 3.06
================ ============== ==============
Average common shares outstanding 378,510 381,218 382,625
================ ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE>
44-85
South Branch Valley Bancorp, Inc., and Subsidiary
- -------------------------------------------------
Consolidated Statements of Shareholders' Equity
For The Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Common Capital Retained Treasury Gain (Loss) on
Stock Surplus Earnings Stock Securities
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 956,562 $ 685,534 $ 6,451,024 $ - - $ - -
Net income - - - - 1,170,286 - - - -
Cash dividends declared on
common stock
($.48 per share) - - - - (183,660) - - - -
-------------- -------------- --------------- -------------- --------------
Balance, December 31, 1993 956,562 685,534 7,437,650 - - - -
Net income - - - - 1,244,590 - - - -
Cost of 4,115 shares acquired
for the treasury - - - - - - (166,970) - -
Cash dividends declared on
common stock
($.61 per share) - - - - (232,126) - - - -
Net unrealized gain (loss) on
securities upon adoption
of SFAS No. 115 - - - - - - - - 431,220
Change in net unrealized
gain (loss) on securities - - - - - - - - (978,320)
-------------- -------------- --------------- -------------- --------------
Balance, December 31, 1994 956,562 685,534 8,450,114 (166,970) (547,100)
Net income - - - - 1,320,156 - - - -
Cash dividends declared on
common stock
($.68 per share) - - - - (257,386) - - - -
Change in net unrealized gain
(loss) on securities - - - - - - - - 887,750
-------------- -------------- --------------- -------------- --------------
Balance, December 31, 1995 $ 956,562 $ 685,534 $ 9,512,884 $ (166,970) $ 340,650
============== ============== =============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE>
45-85
South Branch Valley Bancorp, Inc., and Subsidiary
- -------------------------------------------------
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,320,156 $ 1,244,590 $ 1,170,286
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 154,338 133,833 139,466
Provision for loan losses 55,000 120,000 205,000
Security (gains) losses 1,546 1,607 (32,482)
(Gain) loss on sale of other assets - - 21,391 (29,490)
Deferred income tax expense (benefit) 22,802 (8,259) 63,138
(Increase) decrease in accrued interest receivable (96,329) (61,855) 30,110
Amortization of security premiums and (accretion of discounts) net 88,705 124,215 89,615
(Increase) decrease in other assets (82,702) 52,515 30,077
Increase (decrease) in other liabilities 146,024 59,920 52,168
---------------- --------------- -------------
Net cash provided by operating activities 1,609,540 1,687,957 1,717,888
---------------- --------------- -------------
Cash Flows from Investing Activities
(Purchase of) proceeds from interest bearing deposits with
other banks, net (401,219) 575,800 (211,186)
Proceeds from maturities and calls of securities held to maturity 100,000 590,000 3,383,818
Proceeds from maturities and calls of securities available for sale 5,345,000 3,075,000 - -
Proceeds from sales of securities available for sale 2,030,688 3,008,437 - -
Proceeds from sales of securities - - - - 985,373
Principal payments received on securities held to maturity 313,701 1,038,080 1,710,553
Principal payments received on securities available for sale 170,994 132,666 - -
Purchases of securities held to maturity (615,569) (248,703) (6,317,205)
Purchases of securities available for sale (10,917,720) (6,839,992) - -
(Increase) decrease in Federal funds sold (2,161,745) 525,000 2,325,000
Loans made to customers, net (6,147,361) (4,810,871) (7,362,304)
Purchases of Bank premises and equipment (1,427,803) (616,751) (49,468)
Net cash acquired in purchase of Petersburg Branch 3,400,973 - - - -
Proceeds from sales of other assets - - 139,500 285,500
---------------- --------------- -------------
Net cash (used in) investing activities (10,310,061) (3,431,834) (5,249,919)
---------------- --------------- -------------
Cash Flows from Financing Activities
Net increase in demand deposit, NOW and savings accounts 4,987,833 1,010,167 688,729
Proceeds from sales of (payments for matured) time deposits, net 4,958,802 (1,023,399) 2,753,928
Net increase (decrease) in short-term borrowings (1,700,000) 1,700,000 - -
Proceeds from long-term borrowings 750,000 - - - -
Purchase of treasury stock - - (166,970) - -
Dividends paid (257,386) (232,126) (183,660)
---------------- --------------- -------------
Net cash provided by financing activities 8,739,249 1,287,672 3,258,997
---------------- --------------- -------------
Increase (decrease) in cash and due from banks 38,728 (456,205) (273,034)
Cash and due from banks:
Beginning 2,152,919 2,609,124 2,882,158
---------------- --------------- -------------
Ending $ 2,191,647 $ 2,152,919 $ 2,609,124
================ =============== =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest, net of interest capitalized during construction $ 3,943,067 $ 3,219,912 $ 3,362,873
================ =============== =============
Income taxes $ 759,002 $ 605,411 $ 497,047
================ =============== =============
Supplemental Schedule of Noncash Investing and
Financing Activities
Other real estate acquired in settlement of loans $ 17,905 $ 38,800 $ 10,500
================ =============== =============
Acquisition of Petersburg Branch:
Net cash acquired in purchase $ 3,400,973 $ - - $ - -
================ =============== =============
Fair value of assets acquired, net of cash and
cash equivalents (principally loans) $ 1,738,987 $ - - $ - -
Deposits and other liabilities assumed (5,139,960) - - - -
---------------- --------------- -------------
$ (3,400,973) $ - - $ - -
================ =============== =============
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE>
46-85
South Branch Valley Bancorp, Inc., and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of South Branch Valley Bancorp, Inc., and
its subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. 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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of the Company's more significant
accounting policies.
Principles of consolidation: The accompanying consolidated financial statements
- ----------------------------
include the accounts of South Branch Valley Bancorp, Inc., and its subsidiary,
South Branch Valley National Bank, Inc. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and due
- ---------------------------
from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from demand deposits, NOW accounts,
savings accounts and Federal funds purchased and sold are reported net since
their original maturities are less than three months. Cash flows from loans and
certificates of deposit and other time deposits are reported net.
Securities: Effective January 1, 1994, the Bank adopted Statement of Financial
- ----------
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS No. 115). Under SFAS No. 115, securities are
classified as "held to maturity", "available for sale" or "trading." The
appropriate classification is determined at the time of purchase of each
security and re-evaluated at each reporting date.
Securities held to maturity--Debt securities for which the bank has the positive
- ---------------------------
intent and ability to hold to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts which are recognized using
the interest method. Securities available for sale--Securities not classified as
"held to maturity" or as "trading" are classified as "available for sale."
Securities classified as "available for sale" are those securities the Bank
intends to hold for an indefinite period of time, but not necessarily to
maturity. "Available for sale" securities are reported at estimated fair value
net of unrealized gains or losses, which are adjusted for applicable income
taxes, and reported as a separate component of shareholders' equity.
Trading securities--There are no securities classified as "trading" in the
- -------------------
accompanying financial statements.
Realized gains and losses on sales of securities are recognized on the specific
identification method. Amortization of premiums and accretion of discounts are
computed using the interest method.
Loans and allowance for loan losses: Loans are stated at the amount of unpaid
- --------------------------------------
principal, reduced by unearned discount and an allowance for loan losses.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The Bank makes continuous credit reviews of the loan portfolio and
considers current economic conditions, historical loan loss experience, review
of specific problem loans and other factors in determining the adequacy of the
allowance for loan losses.
22
<PAGE>
47-85
Loans are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
Unearned interest on discounted loans is amortized to income over the life of
the loans, using methods which approximate the interest method. For all other
loans, interest is accrued daily on the outstanding balances.
In 1995, the subsidiary bank adopted Statements of Financial Accounting
Standards Nos. 114 and 118 (SFAS Nos. 114 and 118) "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," respectively. Under SFAS Nos. 114 and 118, a
loan is impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due in accordance with the
contractual terms of the specific loan agreement. Impaired loans, other than
certain large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment, are required to be reported at the present value of
expected future cash flows discounted using the loan's original effective
interest rate or, alternatively, at the loan's observable market price, or at
the fair value of the loan's collateral if the loan is collateral dependent. The
method selected to measure impairment is made on a loan-by-loan basis, unless
foreclosure is deemed to be probable, in which case the fair value of the
collateral method is used. The implementation of SFAS Nos. 114 and 118 did not
have a significant impact on the accompanying financial statements. Generally,
after management's evaluation, loans are placed on nonaccrual status when
principal or interest is greater than 90 days past due based upon the loan's
contractual terms.
Interest is accrued daily on impaired loans unless the loan is placed on
non-accrual status. Impaired loans are placed on non-accrual status when the
payments of principal and interest are in default for a period of 90 days,
unless the loan is both well-secured and in the process of collection. Interest
on non-accrual loans is recognized primarily using the cost-recovery method.
Certain loan fees and direct loan costs are recognized as income or expense when
incurred. Whereas, Statement Number 91 of the Financial Accounting Standards
Board requires that such fees and costs be deferred and amortized as adjustments
of the related loan's yield over the contractual life of the loan. The Bank's
method of recognition of loan fees and direct loan costs produces results which
are not materially different from those that would be recognized had Statement
Number 91 been adopted.
Bank premises and equipment: Bank premises and equipment are stated at cost less
- ----------------------------
accumulated depreciation. Depreciation is computed primarily by the
straight-line method for bank premises and equipment over the estimated useful
lives of the assets. Repairs and maintenance expenditures are charged to
operating expenses as incurred. Major improvements and additions to premises and
equipment, including construction period interest costs, are capitalized.
Interest capitalized during 1995 totaled $26,921. No interest was capitalized
during 1994 and 1993.
Other real estate: Other real estate consists primarily of real estate held for
- ------------------
resale which was acquired through foreclosure on loans secured by such real
estate. At the time of acquisition, these properties are recorded at the lower
of cost or appraised market value with any writedown being charged to the
allowance for loan losses. Expenses incurred in connection with operating these
properties are charged to operating expenses. Gains and losses on the sales of
these properties are credited or charged to operating income in the year of the
transactions.
Other real estate acquired through foreclosure with carrying values of $40,355
and $22,451, at December 31, 1995 and 1994, respectively, is included in other
assets in the accompanying consolidated balance sheets.
Income taxes: The provision for income taxes includes Federal and state income
- -------------
taxes and is
23
<PAGE>
48-85
based on pretax net income reported in the consolidated financial statements,
adjusted for transactions that may never enter into the computation of income
taxes payable. Deferred tax assets and liabilities are based on the differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
Valuation allowances are established when deemed necessary to reduce deferred
tax assets to the amount expected to be realized.
Earnings per share: Earnings per common share are computed based upon the
- --------------------
weighted average shares outstanding. The weighted average number of shares
outstanding was 378,510, 381,218 and 382,625 for the years ended December 31,
1995, 1994 and 1993, respectively.
Employee benefits: The Company has a profit-sharing and thrift plan and an
- -------------------
employee stock ownership plan (ESOP) which cover substantially all employees.
The amount of the contributions to the plans are at the discretion of the
Company's Board of Directors.
Trust department: Assets held in an agency or fiduciary capacity by the
- ------------------
subsidiary bank's Trust Department are not assets of the subsidiary bank and are
not included in the accompanying consolidated balance sheets. Trust Department
income is recognized on the cash basis in accordance with customary banking
practice. Reporting such income on a cash basis rather than the accrual basis
does not have a material affect on net income.
Reclassifications: Certain accounts in the consolidated financial statements
- ------------------
for 1994 and 1993, as previously presented, have been reclassified to
conform to current year classifications.
NOTE 2. ACQUISITION OF PETERSBURG BRANCH
On November 15, 1995, the Bank acquired a branch bank located in Petersburg,
West Virginia from an unaffiliated institution. In connection with this
acquisition, the Bank acquired the branch's assets including its land, banking
facility, equipment and loans and assumed its deposit liabilities. The
acquisition was accounted for as a purchase and the results of operations of the
Petersburg branch since the date of its acquisition are included in the
accompanying consolidated financial statements. The branch's purchase price and
the related excess of the purchase price over the fair value of the net assets
acquired was not significant.
NOTE 3. CASH CONCENTRATION
At December 31, 1995, the subsidiary bank had a concentration totaling
$3,147,431 with NationsBank, consisting of a due from balance and Federal funds
sold. At December 31, 1994, the subsidiary bank had no such concentrations.
NOTE 4. SECURITIES
During 1995, concurrent with the adoption of the Special Report "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" issued by the Financial Accounting Standards Board, the
subsidiary bank reassessed the classifications of its securities and transferred
securities with amortized cost of $3,358,274 and estimated fair value of
$3,410,711 from the held to maturity category to the available for sale
category. Accordingly, shareholders' equity was increased $32,410, net of
deferred income taxes of $20,027, to reflect the net unrealized holding gain on
such securities. This reclassification did not have an impact on the
accompanying statements of income.
24
<PAGE>
49-85
In connection with the adoption of SFAS No. 115, certain securities totaling
$23,716,501 (at amortized cost) were classified as available for sale.
Accordingly, shareholders' equity at January 1, 1994, was increased $431,220,
net of income taxes of $269,950, to reflect the net unrealized holding gains of
such securities. The adoption of SFAS No. 115 had no impact on the accompanying
statements of income.
The amortized cost, unrealized gains and losses, and estimated fair values of
securities at December 31, 1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------------
Carrying
Value
(Estimated
Amortized Unrealized Fair
Cost Gains Losses Value)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Available for sale:
Taxable:
U.S. Treasury Securities $ 7,830,447 $115,362 $ 11,594 $ 7,934,215
U.S. Government agencies and
corporations 14,866,575 296,026 19,554 15,143,047
Small Business Administration guaranteed
loan participation certificates 1,680,257 33,838 - - 1,714,095
Mortgage-backed securities -
U.S. Government agencies and
corporations 2,381,926 24,146 5,637 2,400,435
Corporate debt securities 497,930 9,951 227 507,654
Federal Reserve Bank stock 44,300 - - - - 44,300
Federal Home Loan Bank stock 289,900 - - - - 289,900
Other equity securities 6,625 - - - - 6,625
--------------- --------------- --------------- ---------------
Total taxable 27,597,960 479,323 37,012 28,040,271
--------------- --------------- --------------- ---------------
Tax-Exempt:
State and political subdivisions 3,324,621 116,183 4,595 3,436,209
Federal Reserve Bank stock 4,100 - - - - 4,100
--------------- --------------- --------------- ---------------
Total tax-exempt 3,328,721 116,183 4,595 3,440,309
--------------- --------------- --------------- ---------------
Total $30,926,681 $595,506 $ 41,607 $31,480,580
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------------------------------
Carrying Estimated
Value Unrealized Fair
(Amortized Cost) Gains Losses Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
Mortgage-backed securities--U.S.
Government agencies and corporations $ 2,062,764 $ 10,589 $ 78,216 $ 1,995,137
--------------- --------------- --------------- ---------------
Tax-exempt:
State and political subdivisions 1,103,175 11,801 4,791 1,110,185
--------------- --------------- --------------- ---------------
Total $ 3,165,939 $ 22,390 $ 83,007 $ 3,105,322
--------------- --------------- --------------- ---------------
</TABLE>
25
<PAGE>
50-85
<TABLE>
<CAPTION>
1994
------------------------------------------------------------------------
Carrying Value
Amortized Unrealized (Estimated
Cost Gains Losses Fair Value)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Available for sale:
Taxable:
U.S. Treasury Securities $ 8,628,089 $ 12,137 $319,219 $ 8,321,007
U.S. Government agencies and corporations 12,154,221 21,560 458,480 11,717,301
Mortgage-backed securities--U.S.
Government agencies and corporations 804,134 - - 77,211 726,923
Corporate debt securities 1,047,574 3,381 25,256 1,025,699
Federal Reserve Bank stock 44,300 - - - - 44,300
Federal Home Loan Bank stock 283,800 - - - - 283,800
Other equity securities 6,625 - - - - 6,625
--------------- --------------- --------------- ---------------
Total taxable 22,968,743 37,078 880,166 22,125,655
--------------- --------------- --------------- ---------------
Tax-Exempt:
State and political subdivisions 1,305,239 13,262 59,768 1,258,733
Federal Reserve Bank stock 4,100 - - - - 4,100
--------------- --------------- --------------- ---------------
Total tax-exempt 1,309,339 13,262 59,768 1,262,833
--------------- --------------- --------------- ---------------
Total $24,278,082 $ 50,340 $939,934 $23,388,488
=============== =============== =============== ===============
</TABLE>
Mortgage-backed obligations of U.S. Government agencies and corporations and
Small Business Administration guaranteed loan participation certificates are
included in securities at December 31, 1995. These obligations, having
contractual maturities ranging from 1 to 24 years, are reflected in the
following maturity distribution schedules based on their anticipated average
life to maturity, which ranges from 1 to 9 years. Accordingly, discounts are
accreted and premiums are amortized over the anticipated average life to
maturity of the specific obligation.
The maturities, amortized cost and estimated fair values of securities at
December 31, 1995, are summarized as follows:
<TABLE>
<CAPTION>
Available for sale
----------------------------------
Carrying
Value
Amortized (Estimated
Cost Fair Value)
--------------- ---------------
<S> <C> <C>
Due in one year or less $ 6,337,347 $ 6,467,162
Due from one to five years 20,006,024 20,359,557
Due from five to ten years 4,238,385 4,308,936
Due after ten years - - - -
Equity securities 344,925 344,925
--------------- ---------------
Total $30,926,681 $31,480,580
=============== ===============
</TABLE>
26
<PAGE>
51-85
The proceeds from sales, calls, maturities of securities and principal payments
received on mortgage-backed obligations and the related gross gains and losses
realized are as follows:
<TABLE>
<CAPTION>
Proceeds From Gross Realized
For the --------------------------------------------- ------------------------------
year ended Calls and Principal
December 31, Sales Maturities Payments Gains Losses
- ------------------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1995
Securities held to maturity $ - - $ 100,000 $ 313,701 $ - - $ - -
Securities available for sale 2,030,688 5,345,000 170,994 19,618 21,164
------------- ------------- ------------- -------------- -------------
$2,030,688 $5,445,000 $ 484,695 $19,618 $21,164
============= ============= ============= ============== =============
1994
Securities held to maturity $ - - $ 590,000 $1,038,080 $ - - $ - -
Securities available for sale 3,008,437 3,075,000 132,666 7,172 8,779
------------- ------------- ------------- -------------- -------------
$3,008,437 $3,665,000 $1,170,746 $ 7,172 $ 8,779
============= ============= ============= ============== =============
1993 $ 985,373 $3,383,818 $1,710,553 $32,560 $ 78
============= ============= ============= ============== =============
</TABLE>
At December 31, 1995 and 1994, securities carried at $11,329,098 and $6,970,920,
respectively, with estimated fair values of $11,578,096 and $6,761,458,
respectively, were pledged to secure public deposits, and for other purposes
required or permitted by law.
NOTE 5. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
<S> <C> <C>
Commercial, financial and agricultural $18,875,277 $17,832,805
Real estate - construction 102,690 250,659
Real estate - mortgage 36,980,052 33,314,620
Installment 15,981,416 13,509,203
Other 542,519 422,210
---------------- ---------------
Total loans 72,481,954 65,329,497
Less unearned discount 1,023,875 1,112,033
---------------- ---------------
Total loans net of unearned income 71,458,079 64,217,464
Less allowance for loan losses 859,681 993,023
---------------- ---------------
Loans, net $70,598,398 $63,224,441
---------------- ---------------
</TABLE>
Included in the net balance of loans are non-accrual loans amounting to $538,239
and $674,580 at December 31, 1995 and 1994, respectively. If interest on
non-accrual loans had been accrued, such income would have approximated $36,708,
$5,500 and $41,007 for the years ended December 31, 1995, 1994 and 1993,
respectively.
27
<PAGE>
52-85
The following presents loan maturities at December 31, 1995:
<TABLE>
<CAPTION>
Within After 1 But After
1 Year Within 5 Years 5 Years
--------------- --------------- ---------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 6,302,520 $ 4,319,437 $ 8,253,320
Real estate - construction 37,719 40,398 24,573
Real estate - mortgage 2,713,729 4,256,579 30,009,744
Installment loans 1,952,206 10,769,699 3,259,511
Other 331,518 - - 211,001
--------------- --------------- ---------------
Total $11,337,692 $19,386,113 $41,758,149
=============== =============== ===============
Loans due after one year with:
Variable rates $32,662,304
Fixed rates 28,481,958
---------------
$61,144,262
===============
</TABLE>
The Bank has made, and may be expected to make in the future, commercial and
mortgage loans that have adjustable rates. Such loan rates are generally indexed
to the Wall Street prime interest rate or to other common indices. At December
31, 1995, the Bank's commercial loan portfolio contained adjustable rate loans
of approximately $9,442,196. The interest rates on such loans ranged from 7.56%
to 12.75%, and provided for future interest rate changes at set intervals,
ranging from one to sixty months. Likewise, the Bank's mortgage portfolio
contained adjustable rate loans of approximately $26,326,496 at December 31,
1995. The interest rates on such loans ranged from 6.75% to 12.75%, and provided
for future interest rate changes at set intervals, ranging from monthly to
fifteen years.
Concentration of credit risk: The subsidiary bank grants commercial, residential
- -----------------------------
and consumer loans to customers primarily located in Hardy, Grant, Hampshire and
Pendleton Counties of West Virginia. Although the Bank strives to maintain a
diverse loan portfolio, a substantial portion of its debtors' ability to honor
their contracts is indirectly dependent upon the poultry industry. As of
December 31, 1995 and 1994, the Bank had direct extensions of credit used to
build and operate poultry houses totaling approximately $5,872,805 and
$6,834,966, respectively. These loans are generally structured to be repaid over
periods ranging from 15 to 20 years, however, most also contain balloon
provisions which serve to require each loan's renewal every 1 to 5 years or are
written with an adjustable interest rate feature. The security for these loans
generally consists of liens on the land, buildings and equipment associated with
each poultry house.
The Bank evaluates the credit worthiness of each of its customers on a
case-by-case basis and the amount of collateral it obtains is based upon
management's credit evaluation.
The subsidiary bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others.
28
<PAGE>
53-85
The following presents the activity with respect to related party loans
aggregating $60,000 or more to any one related party (other changes represent
additions to and changes in director and executive officer status):
1995 1994
---------------- ---------------
Balance, beginning $ 3,679,777 $2,148,569
Additions 3,998,154 1,386,819
Amounts collected (2,450,899) (830,193)
Other changes, net (50,634) 974,582
---------------- ---------------
Balance, ending $ 5,176,398 $3,679,777
================ ===============
NOTE 6. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $993,023 $905,448 $845,541
Losses:
Commercial, financial and agricultural 46,373 10,589 124,441
Real estate - mortgage 137,334 14,779 30,419
Installment loans 39,004 45,380 64,755
Other 10,909 11,609 6,776
--------------- --------------- ---------------
Total 233,620 82,357 226,391
--------------- --------------- ---------------
Recoveries:
Commercial, financial and agricultural 7,864 24,627 43,183
Real estate - mortgage 3,135 1,107 8,902
Installment loans 28,862 23,422 25,487
Other 5,417 776 3,726
--------------- --------------- ---------------
Total 45,278 49,932 81,298
--------------- --------------- ---------------
Net losses 188,342 32,425 145,093
Provision for loan losses 55,000 120,000 205,000
--------------- --------------- ---------------
Balance, end of year $859,681 $993,023 $905,448
=============== =============== ===============
</TABLE>
As explained in Note 1, the subsidiary bank adopted SFAS Nos. 114 and 118 in
1995. The Bank's total recorded investment in impaired loans at December 31,
1995, approximated $747,950, for which the related allowance for loan losses
determined in accordance with SFAS Nos. 114 and 118 approximated $153,560. The
Bank's average investment in such loans approximated $696,425 for the year ended
December 31, 1995. All impaired loans at December 31, 1995, were collateral
dependent, and accordingly, the fair value of the loan's collateral was used to
measure the impairment of each loan.
For purposes of SFAS Nos. 114 and 118, the Bank considers groups of
smaller-balance, homogeneous loans to include: mortgage loans secured by
residential property, other than those which significantly exceed the Bank's
typical residential mortgage loan amount (currently those in excess of
$100,000): small balance commercial loans (currently those less than $50,000);
and installment loans to individuals, exclusive of those loans in excess of
$50,000.
For the year ended December 31, 1995, the Bank recognized approximately $85,398
in interest income on impaired loans. Using a cash-basis method of accounting,
the Bank would have recognized approximately the same amount of interest income
on such loans.
29
<PAGE>
54-85
NOTE 7. BANK PREMISES AND EQUIPMENT
The major categories of Bank premises and equipment and accumulated depreciation
at December 31, 1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
<S> <C> <C>
Land $ 443,566 $ 368,970
Building and improvements 2,793,282 1,222,679
Furniture and equipment 1,940,716 1,682,151
Construction in progress - - 159,815
---------------- ---------------
5,177,564 3,433,615
Less accumulated depreciation 1,997,213 1,845,650
---------------- ---------------
Bank, premises and equipment, net $3,180,351 $1,587,965
================ ===============
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993
totaled $154,388, $133,833, and $139,466, respectively.
NOTE 8. DEPOSITS
The following is a summary of interest bearing deposits by type as of December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
<S> <C> <C>
Demand deposits, interest bearing $20,027,502 $15,736,681
Savings deposits 15,731,154 12,958,404
Certificates of deposit 48,947,117 41,621,073
Individual Retirement Accounts 7,507,789 6,614,695
---------------- ---------------
Total $92,213,562 $76,930,853
================ ===============
</TABLE>
Time certificates of deposit and IRA's in denominations of $100,000 or more
totaled $7,758,560 and $5,924,995 at December 31, 1995 and 1994, respectively.
Interest paid on time certificates of deposit and Individual Retirement Accounts
in denominations of $100,000 or more was $392,641, $290,030 and $305,295 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The following is a summary of the maturity distribution of certificates of
deposit and IRA's in denominations of $100,000 or more as of December 31, 1995:
<TABLE>
<CAPTION>
Amount Percent
---------------- ---------------
<S> <C> <C>
Three months or less $1,509,517 19.45%
Three through six months 1,791,216 23.09%
Six through twelve months 1,782,155 22.97%
Over twelve months 2,675,672 34.49%
---------------- -------------
Total $7,758,560 100.00%
================ =============
</TABLE>
NOTE 9. OTHER BORROWINGS
Short-term borrowings: In June, 1994, the subsidiary bank was granted a line of
credit from the Federal Home Loan Bank of Pittsburgh (FHLB), under its Flexline
Program. The line of credit amount is limited to 10% of the Bank's total
qualifying assets and is subject to annual renewal.
30
<PAGE>
55-85
Borrowings under this arrangement bear interest at the rate posted by the FHLB
on the day of the borrowing and is subject to change daily. The line of credit
is secured by a blanket lien on all unpledged and unencumbered assets of the
Bank.
Long-term borrowings: The subsidiary bank's long-term borrowings of $750,000 at
December 31, 1995, consist of advances from the FHLB under its Community
Investment program. These borrowings bear an average fixed interest rate of
5.98% and are due in the year 2002.
NOTE 10. INCOME TAXES
The components of applicable income tax expense (benefit) for the years ended
December 31, 1995, 1994 and 1993, are as follows:
1995 1994 1993
--------------- --------------- ---------------
Current:
Federal $587,472 $611,581 $492,136
State 69,402 61,480 69,785
--------------- --------------- ---------------
656,874 673,061 561,921
--------------- --------------- ---------------
Deferred:
Federal 20,268 (7,342) 54,857
State 2,534 (917) 8,281
--------------- --------------- ---------------
22,802 (8,259) 63,138
--------------- --------------- ---------------
Total $679,676 $664,802 $625,059
=============== =============== ===============
A reconciliation between the amount of reported income tax expense and the
amount computed by multiplying the statutory income tax rates by book pretax
income for the years ended December 31, 1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- -------------------------- ---------------------------
Amount Percent Amount Percent Amount Percent
------------ ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at applicable
statutory rate $679,943 34 $ 649,193 34 $610,417 34
Increase (decrease) in taxes
resulting from:
Tax-exempt interest, net (55,982) (3) (51,525) (3) (65,013) (4)
State income taxes, net of
Federal tax benefit 45,802 2 40,577 2 46,058 3
Other, net 9,913 1 26,557 1 33,597 2
------------ ------------- ------------- ------------ ------------ -------------
Applicable income taxes $679,676 34 $ 664,802 34 $625,059 35
============ ============= ============= ============ ============ =============
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured for tax purposes. Deferred tax assets and liabilities
represent the future tax return consequences of temporary differences, which
will either be taxable or deductible when the related assets and liabilities are
recovered or settled.
31
<PAGE>
56-85
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities as of December 31, 1995 and 1994, are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 216,678 $ 268,414
Deferred compensation 24,930 7,603
Goodwill 790 - -
Net unrealized loss on securities - - 342,495
---------------- ---------------
242,398 618,512
Less valuation allowance (188,773) (207,694)
---------------- ---------------
53,625 410,818
---------------- ---------------
Deferred tax liabilities:
Depreciation 20,959 12,855
Net unrealized gain on securities 213,253 - -
---------------- ---------------
234,212 12,855
---------------- ---------------
Net deferred tax assets (liabilities) $(180,587) $ 397,963
</TABLE>
The income tax expense (benefit) on realized securities gains (losses) was
$(595), $(619) and $12,830, for the years ended December 31, 1995, 1994 and
1993, respectively.
NOTE 11. EMPLOYEE BENEFITS
Profit-Sharing and Thrift Plan:
- -------------------------------
The Company has a defined contribution profit-sharing and thrift plan with
401(k) provisions covering substantially all employees. Contributions to the
Plan are at the discretion of the Board of Directors. Contributions made to the
plan and charged to expense were $50,475, $45,106 and $46,207 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Employee Stock Ownership Plan:
- ------------------------------
The Company has an Employee Stock Ownership Plan (ESOP) which enables eligible
employees to acquire shares of the Company's common stock. The cost of the ESOP
is borne by the Company through annual contributions to an Employee Stock
Ownership Trust in amounts determined by the Board of Directors.
The expense recognized by the Company is based on cash contributed or committed
to be contributed by the Company to the ESOP during the year. Contributions to
the ESOP, for the years ended December 31, 1995, 1994 and 1993 were $45,582,
$40,166 and $40,050, respectively. Dividends made by the Company to the ESOP are
reported as a reduction to retained earnings. The ESOP owns 4,065 shares of the
Company's common stock, all of which, are considered outstanding for earnings
per share computations.
The trustees of both the Profit-Sharing and Thrift Plan and ESOP are also
members of the Company's and subsidiary bank's Board of Directors.
Incentive Compensation Program:
- -------------------------------
The subsidiary bank has an incentive compensation program for its key
employees. Bonuses are awarded to key employees based on a prescribed formula
using the Bank's return on assets as a base. Under the terms of the incentive
compensation program, bonuses charged to operations were $120,000, $112,000 and
$121,000 for 1995, 1994 and 1993, respectively.
32
<PAGE>
57-85
NOTE 12. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance sheet risk: The subsidiary bank is a
- ------------------------------------------------------
party of certain financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. Such financial
instruments consist solely of commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statement of financial position. The contract
amounts of these instruments reflect the extent of involvement the Bank has in
this class of financial instruments. The Bank's total contract amount of
commitments to extend credit at December 31, 1995 and 1994, approximated
$4,462,545 and $3,445,652, respectively.
The Bank'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 Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
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. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, equipment or real estate.
Litigation: The Bank is involved in various legal actions arising in the
- -----------
ordinary course of business. In the opinion of counsel, the outcome of these
matters will not have a significant adverse effect on the consolidated financial
statements.
Employment Agreement: The Company has an employment agreement with its chief
- ----------------------
executive officer. This agreement contains change in control provisions that
would entitle the officer to receive compensation in the event there is a change
in control in the Company (as defined) and a termination of his employment.
NOTE 13. REGULATORY RESTRICTIONS ON CAPITAL AND DIVIDENDS
The subsidiary bank is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by banking regulations. A comparison of the
subsidiary bank's capital as of December 31, 1995, with the minimum requirements
for an adequately capitalized bank is presented below:
Minimum
Actual Requirements
------------ -----------------
Tier 1 Risk-based Capital 13.97% 4.00%
Total Risk-based Capital 15.22% 8.00%
Leverage Ratio 9.18% 3.00%
The primary source of funds for the dividends paid by South Branch Valley
Bancorp, Inc., is dividends received from its subsidiary bank. Dividends paid by
the subsidiary bank are subject to restrictions by banking regulations. The most
restrictive provision requires approval by the regulatory agency if dividends
declared in any year exceed the year's net income, as defined, plus the net
retained profits of the two preceding years. During 1996, the net retained
profits available for distribution to South Branch Valley Bancorp, Inc. as
dividends without regulatory approval are approximately $1,862,000, plus net
retained profits, as defined, for the interim periods through the date of
declaration.
33
<PAGE>
58-85
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the methods and significant assumptions used by the
Company in estimating its fair value disclosures for financial instruments.
Cash and due from banks: The carrying values of cash and due from banks
approximate their estimated fair value.
Interest bearing deposits with other banks: The fair values of interest bearing
deposits with other banks are estimated by discounting scheduled future receipts
of principal and interest at the current rates offered on similar instruments
with similar remaining maturities.
Federal funds sold: The carrying values of federal funds sold approximate their
estimated fair values.
Securities: Estimated fair values of securities are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable securities.
Loans: The estimated fair values for loans are computed based on scheduled
future cash flows of principal and interest, discounted at interest rates
currently offered for loans with similar terms to borrowers of similar credit
quality. No prepayments of principal are assumed.
Deposits: The estimated fair values of demand deposits (i.e. noninterest bearing
checking NOW, Super NOW, Money Market and savings accounts) and other variable
rate deposits approximate their carrying values. Fair values of fixed maturity
deposits are estimated using a discounted cash flow methodology at rates
currently offered for deposits with similar remaining maturities. Any intangible
value of long-term relationships with depositors is not considered in estimating
the fair values disclosed.
Long-term borrowings: The fair values of long-term borrowings are estimated by
discounting scheduled future payments of principal and interest at current rates
available on borrowings with similar terms.
Off-balance sheet instruments: The fair values of commitments to extend credit
and standby letters of credit are estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit standing of the counterparties. The amounts of
fees currently charged on commitments and standby letters of credit are deemed
insignificant, and therefore, the estimated fair values and carrying values are
not shown below.
The carrying values and estimated fair values of the Company's financial
instruments are summarized below:
December 31, 1995
----------------------------------
Carrying Estimated
Value Fair Value
---------------- --------------
Financial assets:
Cash and due from banks $ 2,191,647 $ 2,191,647
Interest bearing deposits other banks 2,134,919 2,199,418
Federal funds sold 2,161,745 2,161,745
Securities available for sale 31,480,580 31,480,580
Loans 70,598,398 70,757,154
---------------- ---------------
$108,567,289 $108,790,544
================ ===============
Financial liabilities
Deposits $100,046,336 $100,603,254
Long-term borrowings 750,000 750,000
---------------- ---------------
$100,796,336 $101,353,254
================ ===============
34
<PAGE>
59-85
NOTE 15. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The investment of the Corporation in its wholly-owned subsidiary is presented on
the equity method of accounting. Information relative to the Corporation's
balance sheets at December 31, 1995 and 1994, and the related statements of
income and cash flows for the years ended December 31, 1995, 1994 and 1993 are
presented as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
---------------- ---------------
<S>
Assets <C> <C>
- -------
Cash $ 68,466 $ 72,563
Investment in bank subsidiary, eliminated in consolidation 11,246,742 9,292,126
Investment in other bank common stock 6,625 6,625
Other assets 6,826 6,826
---------------- ---------------
Total assets $11,328,659 $9,378,140
================ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
Liabilities and shareholders' equity
- ------------------------------------
Common stock, $2.50 par value, authorized 600,000
shares, issued 382,625 $ 956,562 $ 956,562
Capital surplus 685,534 685,534
Retained earnings (consisting of undivided profits of
subsidiary not yet distributed) 9,512,883 8,450,114
Less cost of shares acquired for the treasury 1995 and
1994, 4115 shares (166,970) (166,970)
Net unrealized gain (loss) on securities 340,650 (547,100)
---------------- ---------------
Total shareholders' equity 11,328,659 9,378,140
---------------- ---------------
Total liabilities and shareholders' equity $11,328,569 $9,378,140
================ ===============
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------------- ---------------
<S> <C> <C> <C>
Statements of Income
- --------------------
Income - dividends from bank subsidiary $ 264,000 $ 460,000 $ 180,000
Other dividends 191 186 - -
Expenses--operating (17,728) (17,729) (14,303)
-------------- ---------------- ---------------
Income before income taxes and
undistributed income 246,463 442,457 165,697
Applicable income tax expense (benefit) (6,826) (6,826) (5,579)
-------------- ---------------- ---------------
Income before undistributed income 253,289 449,283 171,276
Equity in undistributed income in
bank subsidiary 1,066,866 795,307 999,010
-------------- ---------------- ---------------
Net income $ 1,320,155 $1,244,590 $1,170,286
============== ================ ===============
</TABLE>
35
<PAGE>
60-85
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------------- ---------------
<S> <C> <C> <C>
Statements of Cash Flows
- ------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 1,320,155 $1,244,590 $1,170,286
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income
of subsidiary (1,066,866) (795,307) (999,010)
(Increase) decrease in other assets - - (1,247) 668
-------------- ---------------- ---------------
Net cash provided by operating activities 253,289 448,036 171,944
-------------- ---------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of other bank stocks - - (6,625) - -
-------------- ---------------- ---------------
Net cash (used in) investing
activities - - (6,625) - -
-------------- ---------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury stock - - (166,970) - -
Dividends paid to shareholders (257,386) (232,126) (183,660)
-------------- ---------------- ---------------
Net cash (used in) financing
activities (257,386) (399,096) (183,660)
-------------- ---------------- ---------------
Increase (decrease) in cash (4,097) 42,315 (11,716)
Cash:
Beginning 72,563 30,248 41,964
-------------- ---------------- ---------------
Ending $ 68,466 $ 72,563 $ 30,248
============== ================ ===============
</TABLE>
South Branch Valley Bancorp, Inc., accounts for its investment in its bank
subsidiary by the equity method. During the years ended December 31, 1995, 1994
and 1993, changes were as follows:
Number of shares owned at December 31, 1995 - 60,000 Percent to total shares
at December 31, 1995 - 100%
Balance at December 31, 1992 $ 8,044,909
Add (deduct):
Equity in net income 1,179,010
Dividends declared (180,000)
---------------
Balance at December 31, 1993 $ 9,043,919
Add (deduct):
Equity in net income 1,255,307
Dividends declared (460,000)
Net unrealized gain (loss) on securities (547,100)
---------------
Balance at December 31, 1994 $ 9,292,126
Add (deduct):
Equity in net income 1,330,866
Dividends declared (264,000)
Net unrealized gain (loss) on securities 887,750
---------------
Balance at December 31, 1995 $11,246,742
===============
36
<PAGE>
61-85
Shareholders' Information
South Branch Valley Bancorp, Inc. files an annual report to the Securities and
Exchange Commission on Form 10-KSB. Copies of this report may be obtained
without charge upon written request to:
Carol A. Riggleman
South Branch Valley Bancorp, Inc.
Post Office Box 680
Moorefield, West Virginia 26836
Common Stock Dividend
Dividends on South Branch Valley Bancorp, Inc. stock are normally paid on the
15th day of June and December. The record date is normally the 1st day of the
same months.
The Company acts as its own registrar and transfer agent. Its shares are not
publicly traded on any exchange or over the counter market. Shares of the
Company's common stock are occasionally bought and sold by private individuals,
firms or corporations. In many instances, the Company does not have knowledge of
the purchase price or the terms of the purchase. No definitive records of bids
and ask or sale prices are available.
Offices of South Branch Valley National Bank
Main Bank Petersburg Branch
310 North Main Street 102 Virginia Avenue
Moorefield, WV 26836 Petersburg, WV 26847
(304) 538-2353 (304) 257-2122
Mathias Branch Franklin Branch
P.O. Box 40 P.O. Box 863
Mathias, WV 26812 Franklin, WV 26807
(304) 897-5997 (304) 358-2388
Officers of the Holding Company
South Branch Valley Bancorp, Inc.
OSCAR M. BEAN H. CHARLES MADDY, III
Chairman of the Board President
DONALD W. BILLER PHOEBE F. HEISHMAN
Vice Chairman Secretary
RUSSELL F. RATLIFF, JR. CAROL A. RIGGLEMAN
Treasurer Assistant Secretary
37
<PAGE>
62-85
Directors
South Branch Valley Bancorp, Inc.
and
South Branch Valley National Bank
OSCAR M. BEAN
Chairman of the Board
Managing Partner -- Bean & Bean Attorneys
H. CHARLES MADDY, III
President and Chief Executive Officer,
South Branch Valley National Bank
DONALD W. BILLER
Vice-Chairman
President -- D. W. Biller, Inc.
Director -- WV Farm Credit ACA
PHOEBE F. HEISHMAN
Secretary
Editor and Publisher -- Moorefield Examiner
President -- R.E. Fisher Co., Inc.
<TABLE>
<S> <C>
JAMES M. COOKMAN HAROLD K. MICHAEL
President -- Cookman Insurance Group Agent -- Nationwide Insurance
President -- Cookman Realty Group, Inc. Member -- WV House of Delegates
President -- Transcover, Inc.
MARY ANN OURS
President -- Ours Valley View Poultry Farms, Inc.
JOHN W. CRITES
President -- Allegheny Wood Products, Inc.
Partner -- JPC, Limited Liability Co. RUSSELL F. RATLIFF, JR.
Partner -- Allegheny Dimension, Limited Liability Co. Vice President & Cashier
Principal Stockholder - KJV Aviation, Inc. South Branch Valley National Bank
THOMAS J. HAWSE, III HARRY C. WELTON, JR.
President -- Hawse Food Market, Inc. Retired Farmer
Partner -- Hawse Brothers
RENICK C. WILLIAMS
GARY L. HINKLE President -- South Branch Inn, Inc.
President -- Hinkle Trucking, Inc. President -- Fort Pleasant Farms, Inc.
President -- Dettinburn Transport, Inc. President -- Hampshire S & J Co., Inc.
Vice-President -- Mt. Storm Fuel Corp. Partner -- Renick Williams & Sons
JEFFREY E. HOTT J. ALECK WELTON
Vice-President -- Hott's Ag Services, Inc. Director Emeritus
Vice-President -- Franklin Oil Co.
</TABLE>
38
<PAGE>
63-85
Operating Officers of the Bank
South Branch Valley National Bank
H. CHARLES MADDY, III
President and Chief Executive Officer
<TABLE>
<S> <C>
RUSSELL F. RATLIFF, JR. JEFFERY L. PAVAN
Vice President Operations, Cashier & Trust Officer Vice President Loan Administration
SCOTT C. JENNINGS CAROL A. RIGGLEMAN
Vice President, Loan Review & Compliance Community Reinvestment Officer
BARBARA HELMAN KATHLEEN S. SIMERLY
Assistant VP Operations Accounting Officer
DEBRA S. DAVIS MARK H. WRIGHT
Asst. VP Loan Administration & Senior Loan Officer Commercial Loan Officer
KENT SHIPE JOHN F. BOWERS
Mathias Branch Manager Franklin Branch Manager
MARLIN C. CASTO J. VANCE WILSON
Petersburg Branch Manager Loan Officer
BELINDA L. TURNER CATHLEEN D. SMITH
Assistant Branch Manager, Petersburg Loan Officer
DEBORAH HAMILTON CAROLYN SPONAUGLE
Assistant Branch Manager, Mathias Assistant Branch Manager, Franklin
JULIE R. COOK DANYL FREEMAN
IRA Officer Internal Auditor
</TABLE>
39
<PAGE>
64-85
Employees of the Bank
South Branch Valley National Bank
STAFF
Main Bank
Teresa Barr Jonathan Bland Carolyn Berg
Curt Boswell Stacey Bowman Ethel Coby
Shirley Corsetti Rhonda Dolly Jeremy Eye
Fern Gilhuys Tracey Gochenour Jolene Johnson
Sharon Kuykendall Gail Malcolm Tina Martin
Tabitha Mongold Bernadette Nesslerodt Sandra Ours
Christa Raines Shelly Reel Angie Smith
Elizabeth Snyder Pamela Smoot Elaine Stickley
Ramona Thorne Pamela Wilson Gloria Wolfe
Mathias
Christine Delawder Teresa Halterman
Connie Landacre Helen May
Donna Shipe Dorothy Strawderman
Franklin
Debra Alt
Tammy Clutter Amber-Jon Hanna
Renee McCutcheon Lisa Roberson
Petersburg
Regina Minnich Stacy Park Myra Yokum
40
65-85
E X H I B I T (20)
Other Documents Incorporated By Reference
Proxy Statement
1
<PAGE>
66-85
Exhibit 20
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1996
GENERAL INFORMATION.
- --------------------
This proxy statement is furnished by the Board of Directors of South
Branch Valley Bancorp, Inc. (the "Company") for the Annual Meeting of
Shareholders to be held at the Company's main offices, 310 North Main Street,
Moorefield, West Virginia 26836 at 2:00 p.m. on April 16, 1996 and any
adjournment thereof. Holders of shares of stock of the Company of record at the
close of business on March 1, 1996 are entitled to notice of and to vote at the
Annual Meeting of Shareholders and at any adjournment of the meeting. The
holders of a majority of the shares entitled to vote at the meeting must be
present in person or represented by proxy in order to constitute a quorum for
all matters to come before the meeting.
In the election of directors, shareholders cast one (1) vote for each
nominee for each share held. However, every shareholder has the right of
cumulative voting, in person or by proxy, in the election of directors.
Cumulative voting gives each shareholder the right to aggregate all votes which
he or she is entitled to cast in the election of directors and to cast all such
votes for one candidate or distribute them among as many candidates and in such
a manner as the shareholder desires. For 1996 the number of directors to be
elected is five (5) and therefore each shareholder has the right to cast five
(5) votes in the election of directors for each share of stock held on the
record date. If you wish to exercise, by proxy, your right to cumulative voting
in the election of directors, you must provide a proxy showing how your votes
are to be distributed among one or more candidates. Unless contrary instructions
are given by a shareholder who signs and returns a proxy, all votes for the
election of directors represented by such proxy will be divided equally among
the five (5) nominees set forth in this proxy statement. However, if cumulative
voting is invoked by any shareholder, the vote represented by the proxies
delivered pursuant to this solicitation, which do not contain contrary
instructions, may be cumulated at the discretion of the Board of Directors of
South Branch Valley Bancorp, Inc. in order to elect to the Board of Directors
the maximum nominees named in this proxy statement.
On the record date, there were 378,510 shares of common stock outstanding
which are held by approximately 619 shareholders. A majority of the outstanding
shares of South Branch Valley Bancorp, Inc. will constitute a quorum at the
meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence of a quorum for the transactions of business. The
election of each director nominated requires the favorable vote of a plurality
of all votes cast by the holders of common stock at a meeting at which a quorum
is present. Only shares that are voted in favor of a particular nominee will be
counted toward such nominee's achievement of a plurality. Abstentions and broker
non-votes will not be counted toward such nominee's achievement of a plurality
and thus have no effect. A broker
2
<PAGE>
67-85
non-vote generally occurs when a broker who holds shares in street name for a
customer does not have the authority to vote on certain matters because its
customer has not provided any voting instructions on the matter.
PROXY SOLICITATION.
- ------------------
The accompanying proxy is solicited by the Board of Directors of the
Company. In that connection, this proxy statement is being mailed to the
shareholders on or before March 19, 1996, concurrently with the mailing of the
Company's 1995 Annual Report. In addition to this solicitation by mail, it is
possible that employees of the Company may solicit proxies in person or by
telephone. Brokers, fiduciaries, custodians and other nominees have been
requested to forward solicitation materials to the beneficial owners of the
common stock of the Company held of record in their names and will, upon
request, be reimbursed for their reasonable expenses in so doing. All costs of
the solicitation of proxies will be borne by the Company.
REVOCATION OF PROXY OR SUBSTITUTION.
- -----------------------------------
Any person signing and mailing the enclosed proxy may, nevertheless,
revoke the proxy at any time before the actual voting thereof (i) by giving
written notice to the President of South Branch Valley Bancorp, Inc, (ii) by
submitting a subsequently dated proxy, or (iii) by appearing at the 1996 annual
meeting and voting in person. On the accompanying proxy, a shareholder may
substitute the name of another person in lieu of those persons presently named
as proxies. Such substituted persons may be asked to present adequate
identification to the Secretary prior to voting.
SHAREHOLDER OWNERSHIP.
- ----------------------
As of March 1, 1996, so far as is known to the Company, the following
persons owned beneficially 5% or more of the outstanding common stock of the
Company.
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
- ---------------- ---------------- ----------
John W. Crites 21,905 (1) 5.8%
46 Point Drive
Petersburg, WV 26847
(1) 19,905 shares are owned by Allegheny Wood Products, Inc., of which
Mr. Crites is majority owner and president.
ELECTION OF DIRECTORS.
- ---------------------
NOMINEES. There are five (5) nominees for election as directors of the
--------
Company to hold office until 1999 and until their successors have been duly
elected and qualified.
3
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68-85
The Articles of Incorporation of the Company provide that nominations for
election to the Board of Directors may be made by the Board of Directors or by
any shareholder entitled to vote for the election of directors. Nominations,
other than those made by or on behalf of the existing management of the Company,
must be made in writing and delivered or mailed to the President of the Company
not less than thirty (30) days prior to any meeting of shareholders called for
the election of directors; provided, however, that if less than thirty (30) days
notice of the meeting is given to shareholders, such nomination shall be mailed
or delivered to the President of the Company not later than the fifth (5th) day
following the day on which the notice of meeting was mailed. Such notification
shall contain the following information to the extent known by the shareholder:
(i) the name and address of each nominee, (ii) the principal occupation of each
nominee, (iii) the name and address of the notifying shareholder, and (iv) the
number of shares of the Company's stock owned by the notifying shareholder.
Nominations not made in accordance with these requirements, may, in the
discretion of the chairman of the meeting, be disregarded, and upon his
instruction, the votes cast for each such nominee shall be disregarded.
If the enclosed proxy is properly executed and received in time for the
meeting, it is the intention of the person named in the proxy to vote for the
shares represented thereby for the persons nominated for election as directors
unless authority to vote has been withheld or otherwise directed by the
shareholder. All of the nominees have indicated a willingness to serve, but in
case any of the nominees is not a candidate at the meeting or is disqualified as
a candidate for any reason, it is the intention of the persons named in the
enclosed proxy to vote in favor of the remainder of the nominees and to vote for
substitute nominees at their discretion.
Donald W. Biller, John W. Crites, Jeffrey E. Hott and Harry C.
Welton were each elected to the Board at the 1993 annual meeting and are
currently serving as directors of the Company. Russell F. Ratliff, Jr.
was elected to the Board at the 1995 annual meeting and is currently
serving as a director of the Company. All nominees are also directors
of the Company's subsidiary, South Branch Valley National Bank.
The following is information about the nominees as of March 1, 1996:
DONALD W. BILLER, 64, is president of D.W. Biller, Inc. which is a
----------------
farming operation in the Lost River Valley. A director of the Company
since 1987 and the Bank since 1975, he presently serves on the Executive
and Trust Audit committees. Mr. Biller is the beneficial owner of 6,120
shares of the Company's common stock.
JOHN W. CRITES, 55, is president of Allegheny Wood Products, Inc.,
---------------
and a partner in both Allegheny Dimension, LLC and JPC, LLC, all three
of which are involved in the wood products industry in Grant County.
Mr. Crites has been a director of both the Company and the Bank since
4
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69-85
1989 and currently serves on the Planning & Budget Committee and is a
rotating member of the Executive Committee. Mr. Crites is the
beneficial owner of 21,905 shares of the Company's common stock.
JEFFREY E. HOTT, 45, is Vice President of both Franklin Oil Company
---------------
and E.E. Hott, Inc. The latter is an agricultural services and farming
operation. Both entities are located in Pendleton County. Mr. Hott has
been a director of both the Company and the Bank since 1990. He
currently serves on the Trust Audit Committee and is a rotating member
of the Executive Committee. Mr. Hott is the beneficial owner of 17,050
shares of the Company's common stock.
HARRY C. WELTON, 66, is owner of a family farming operation near
---------------
Moorefield. He has been a director of the Company since 1987 and of the
Bank since 1986. Mr. Welton currently serves on the Asset/Liability
Management & Investments and the Compliance & Audit committees, and is
a rotating member of the Executive Committee. Mr. Welton is the
beneficial owner of 13,430 shares of the Company's common stock.
RUSSELL F. RATLIFF, JR., 45, a resident of Moorefield, has served as an
------------------------
officer of the bank since 1984, having served as Vice President and Cashier from
1993 to present, CEO and Cashier from 1988 to 1993 and Senior Vice President and
Cashier from 1986 to 1987. He has served as treasurer of the Company since its
inception in 1987 and has been a director of the Company since October 1994, at
which time he was also appointed to the bank board. In 1995 he was elected to
serve a one year term. Mr. Ratliff is the beneficial owner of 1,498 shares of
the Company's common stock.
CURRENT BOARD OF DIRECTORS.
- ---------------------------
In addition to the individual nominees listed above, the current Board of
Directors of the Company is comprised of the eight individuals listed below.
Directors of the Company are divided into three classes and serve a staggered
three (3) year term. All current directors of the Company are also directors of
the Company's subsidiary, South Branch Valley National Bank ("Bank"). Directors
of the Bank serve for a one (1) year term. The table below sets forth
information concerning each director as of March 1, 1996. The current number of
directors of the Company is fourteen (14).
Date
Current Term
as Director Positions & Principal
of Company Occupation or Employ-
Name and Age Expires ment Last Five Years
- ------------ ------------ ---------------------
Oscar M. Bean (45) 1998 Chairman of the Board since
February 1995; Director of
Company since 1987; Director of
Bank since 1978; Managing
5
<PAGE>
70-85
Bean (Cont.) Partner of Bean & Bean Attorneys.
James M. Cookman (41) 1997 Director of Company and Bank
since 1994; President of
Cookman Insurance Group;
President of Cookman Realty
Group, Inc.; President of
Transcover, Inc.
Thomas J. Hawse, III (50) 1997 Director of Company and
Bank since May 1989; President of Hawse
Food Market, Inc.; Partner, Hawse Brothers.
Phoebe F. Heishman (54) 1998 Secretary of Company since
1995; Director of Company since
1987; Director of Bank since
1973; Editor and Publisher of
Moorefield Examiner; President
--------
of R.E. Fisher Co., Inc.
Gary L. Hinkle (46) 1997 Director of Company and Bank
since 1993; President of Hinkle
Trucking, Inc.; President of
Dettinburn Transport, Inc.;
Vice President of Mt. Storm
Fuel Corp.
H. Charles Maddy, III (32) 1997 Director of Company and
Bank since 1993; President of the Company
since 1994; President and Chief Executive
Officer of South Branch Valley National
Bank since 1993; Chief Financial Officer
of Company 1988 to 1994; Vice President and
Controller of Bank, 1988 to 1993.
Harold K. Michael (52) 1997 Director of Company and Bank
since 1994; Owner/Agent of
Harold K. Michael & Son
Insurance; Member of West
Virginia House of Delegates.
Mary Ann Ours (62) 1998 Director of Company and Bank
since 1994; President of Valley
View Poultry Farm, Inc.
Renick C. Williams (61) 1998 Director of Company since 1987;
President and Chairman of the
Board of Company, 1987 to 1995;
6
<PAGE>
71-85
Williams (Cont.) Director of Bank since 1967;
President of South Branch Inn,
Inc.; President of Fort Pleasant
Farms, Inc.; President of
Hampshire S&J Co., Inc.;
Partner, Renick Williams & Sons.
EXECUTIVE OFFICERS.
- -------------------
The following table identifies the executive officers of the Company,
all of whom were appointed in April 1995 to serve until the next annual
meeting. Mr. Pavan and Mr. Jennings are executive officers of the
Company's only subsidiary, South Branch Valley National Bank. Mr. Bean
and Mrs. Heishman, who are also directors of the Company, do not receive
additional compensation for their service as executive officers of the
Company and thus are not listed in the Executive Compensation Table
shown on page 10.
Name, Year Appointed, Age Office, Experience
- ------------------------- ------------------
Oscar M. Bean, 1995 (45) Chairman of the Board of the
Company February 1995 to
present; Chairman of the Board
of the Bank, February 1995 to
present; Secretary of the
Company 1987 to February 1995.
Phoebe F. Heishman, 1995 (54) Secretary of the Company,
February 1995 to present.
H. Charles Maddy, III, 1988 (32) President of the Company since
1994; Chief Financial Officer
of the Company, 1988 to 1994;
President and Chief Executive
Officer of the Bank, April
1993 to present; Executive Vice
President of the Bank, 1992 to
1993; Vice President and
Controller, 1988 to 1992.
Russell F. Ratliff, Jr., 1986 (45) Treasurer of the Company, 1987
to present; Vice President and
Cashier of the Bank, April 1993
to present; CEO and Cashier of
the Bank, 1988 to 1993.
Jeffery L. Pavan, 1992 (33) Vice President of Loan
Administration, 1992 to
present. Previously affiliated
with United Companies Lending
7
<PAGE>
72-85
Pavan (Cont.) Corporation, Inc. in Fort Wayne,
Indiana.
Scott C. Jennings, 1994 (34) Vice President of Loan Review
and Compliance, 1994 to
present; Loan Review and
Compliance Officer 1991 to
1994.
OWNERSHIP OF STOCK BY DIRECTORS AND EXECUTIVE OFFICERS.
- -------------------------------------------------------
The following table sets forth the amount of common stock beneficially
owned by each director and by all executive officers and directors of the
Company and its subsidiary, South Branch Valley National Bank, as a group of
sixteen (16) persons as of March 1, 1996
Name of Qualifying Other Shares
Beneficial Shares Beneficially Owned Percent of
Owner Owned Direct Indirect Class**
- ---------- ----------- ---------------------------- -------------
Oscar M. Bean ........ 1,000 5,728 3,815 (4) 2.5%
Donald W. Biller ..... 1,000 4,120 1,000 (1) 1.4%
James M. Cookman ..... 1,000 --- 428 (7) .1%
John W. Crites ....... 1,000 1,000 19,905 (2) 5.5%
Thomas J. Hawse, III . 1,000 1,800 --- .5%
Phoebe F. Heishman ... 1,000 9,150 1,540 (5) 2.8%
Gary L. Hinkle ....... 1,000 6,517 2,000 (8) 2.3%
Jeffrey E. Hott ...... 1,000 1,000 15,050 (3) 4.2%
H. Charles Maddy, III * 202 333 (6) .1%
Harold K. Michael .... 1,000 8 --- .0%
Mary Ann Ours ........ 1,000 3,615 --- .9%
Russell F. Ratliff,Jr * 1,100 398 (6) .4%
Harry C. Welton, Jr .. 1,000 2,310 10,120 (1) 3.3%
Renick C. Williams ... 1,000 130 --- .0%
36,680 54,589 24.0%
====== ====== ======
All directors and
executive officers as
a group (16 persons). 36,708 54,788 24.2%
====== ====== ======
* Director/employee exempt from qualifying requirement.
** Does not include qualifying shares.
(1) All shares indirectly held are owned by the spouse.
(2) All shares indirectly held by Mr. Crites are owned by Allegheny
Wood Products, Inc. of which Mr. Crites is the president and majority
shareholder.
8
<PAGE>
73-85
(3) 150 shares are owned by Mr. Hott's minor children; 7,800 shares are
owned by E.E. Hott, Inc. and 7,100 shares are owned by Franklin Oil Co.
(Mr. Hott is vice president of both companies).
(4) 55 shares are owned by Mr. Bean's spouse; 260 shares are owned by
Mr. Bean's minor children; 3,500 shares are owned by Mr. Bean's mother
for whom he has power of attorney.
(5) 220 shares are owned by Ms. Heishman's spouse; 1320 shares are
owned by minor children.
(6) Fully vested shares held on behalf of named individual in the Company's
ESOP.
(7) 60 shares are owned by Mr. Cookman's minor children; 500 shares are
owned by Cookman Insurance Center, Inc. in which Mr. Cookman has a
majority interest, and 368 shares are owned by the Cookman Insurance
Center, Inc. Profit Sharing Plan.
(8) 2,000 shares are owned by Hinkle Trucking, Inc. of which Mr. Hinkle
is the president.
DIRECTORS' QUALIFICATIONS, FEES, COMMITTEES, MEETINGS AND ATTENDANCE.
- ---------------------------------------------------------------------
Each director of the Company is required to own a minimum of 1,000 shares
of the Company's common stock. Ownership is defined as shares held in the
individual's own name, jointly with spouse, or by a company where the individual
has controlling interest. Directors who are also employees of the Company's
subsidiary bank are exempted from this requirement. In addition, each director
must sign an oath and pledge confidentiality on all matters that he might learn
in his role as a director. The Company requires that all directors retire on or
before age 70.
Directors of the Company do not receive a fee for their services. During
the 1995 calendar year, there were five (5) meetings of the Board of Directors
of the Company. The Company has no standing committees. Nominations for election
to office are made by the Board as a whole.
Directors of South Branch Valley National Bank receive a fee for their
services of $400 per month except for the Chairman of the Board who receives
$500 per month. They also receive $100 for each meeting they attend. As
employees of the bank, Mr. Maddy and Mr. Ratliff do not receive the $100 fee for
each meeting attended. Pursuant to a deferred compensation plan adopted in 1994,
directors may elect to defer their fee income. Periodically, the fees will be
converted to units representing shares of the Company's stock which the Company
is required to deliver when the director reaches retirement age. Directors have
no voting rights with respect to the units of Company stock purchased.
During the 1995 calendar year, there were sixteen (16) meetings of
the Board of Directors of South Branch Valley National Bank. The Board
9
<PAGE>
74-85
of Directors of South Branch Valley National Bank has a standing Executive
Committee, a standing Planning & Budget Committee, a standing Compliance & Audit
Committee, a standing Trust Audit Committee, and a standing Investments &
Asset/Liability Management Committee. The Board does not have a nominating
committee as nominations are made by the Board as a whole. No directors attended
fewer than 75% of the aggregate of all Board and committee meetings for those
committees of which they are members.
The Executive Committee is comprised of eight directors, four of whom are
regular members including the Chairman of the Board and the President & Chief
Executive Officer and the Vice President of Operations. The fourth member is
rotated alphabetically each year and for the current year is Donald W. Biller.
The other four members rotate each month according to their membership on other
committees which are meeting the same day. The Committee monitors the Bank's
problem loans, sets loan limits for the Bank's officers and for the Officer Loan
Committee. It sits as an approval body for loans above the limits set for the
Officer Loan Committee, and is responsible for the Bank's loan policy. The
committee has the authority to establish officers' salaries and reviews
management's recommendations as to employee pay grade scales and other matters
relating to compensation and personnel. The committee may transact any business
that the entire Board can transact.
The Compliance & Audit Committee has the primary responsibility of
administering the Bank's compliance monitoring system and of reviewing all audit
issues relating to the Bank, both external and internal. The committee met three
times in 1995 to review reports submitted by the compliance officer and internal
auditor, noting any exceptions, and sees that education and training sessions
are scheduled for any area where deficiencies are noted. The committee looks at
each employee's area of responsibility to ascertain that there are no conflicts
of interest. Members of this committee are Oscar M. Bean, H. Charles Maddy, III,
Russell F. Ratliff, Jr., James M. Cookman, Harold K. Michael and Harry C.
Welton.
The Investments & Asset/Liability Management Committee coordinates the
Bank's overall acquisition and allocation of funds along with managing the
Bank's interest rate exposure and determining general balance sheet strategy.
This committee is also involved with the investment policy, asset/liability
management, liquidity management, capital management and related issues. Members
of this committee are Oscar M. Bean, Harry C. Welton, H. Charles Maddy, III,
Thomas J. Hawse, III, Renick C. Williams and Russell F. Ratliff, Jr. This
committee meets at least quarterly.
The Planning & Budget Committee consists of Oscar M. Bean, Renick
C. Williams, John W. Crites, Thomas J. Hawse, III, Gary L. Hinkle, H.
Charles Maddy, III and Russell F. Ratliff, Jr. This committee
recommends planning and budgeting policy to the Board, monitors the
planning and budgeting activities of the Bank's officers, and is
responsible for planning future direction of the Bank. The Bank's
10
<PAGE>
75-85
strategic plan, mission statement and policy statement are all
responsibilities of this committee.
The Trust Audit Committee reviews all issues relating to the Bank's
trust department, including audit issues. The Committee is comprised of
the following members: Donald W. Biller, Jeffrey E. Hott, Phoebe F.
Heishman, and Mary Ann Ours.
EXECUTIVE COMPENSATION.
- -----------------------
Cash Compensation. Executive officers of the Company are not compensated for
- ------------------
services rendered to the Company. Executive officers of its subsidiary, South
Branch Valley National Bank, are compensated for services rendered to the Bank.
The table below sets forth the cash compensation of the Company's Chief
Executive Officer and any executive officer of South Branch Valley Bancorp, Inc.
or its subsidiary earning $100,000 or more for the years ended December 31,
1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal All Other
Position Year Salary Bonus Compensation
H. Charles Maddy, III 1995 $70,000 $25,110 $19,432 (1)
President & Chief
Executive Officer 1994 $60,000 $23,886 $17,427 (1)
1993 $52,093 $23,886 $ 5,339 (2)
(1) Amount includes payments made on behalf of the executive to the ESOP and
401(k) Profit Sharing Plan, amounts taxable to the executive for personal use of
the Company vehicle, and fees received by the executive as a member of the
Company's subsidiary bank's board of directors.
(2) Amount represents payments made by the Company to the ESOP and 401(k) Profit
Sharing Plan on behalf of named individuals.
SOUTH BRANCH VALLEY BANCORP, INC. PLANS.
- ----------------------------------------
The Company has a defined contribution profit-sharing and thrift plan with
401(k) provisions covering substantially all employees. Any employee who is at
least 21 years of age and is employed in a position requiring at least 1,000
hours of service per year is eligible to participate. Vesting in discretionary
contributions occurs at the rate of 0% for the first two years of eligibility
and 20% per year thereafter. Under the provisions of the plan, the Company will
make a
11
<PAGE>
76-85
matching contribution on behalf of each participant of 25% of the participant's
salary reduction contributions of up to 4% of such participant's compensation.
These matching contributions shall be fully vested at all times. The Company may
also make optional contributions at the discretion of the Company's Board of
Directors. Total Company contributions to the plan for the year ended December
31, 1995, totaled $48,518. The trustees of the plan are also members of the
Company's Board of Directors.
The Company has an Employee Stock Ownership Plan (ESOP) covering
substantially all employees. Any employee who is at least 21 years of age and is
credited with at least 1,000 hours of service during the plan year is eligible
to participate. Vesting occurs at the rate of 0% for the first year of credited
service and 20% for each year thereafter. Under the provisions of the plan,
employee participants in the ESOP are not permitted to contribute to the plan,
rather the cost of the ESOP is borne by the Company through annual contributions
in amounts determined by the Company's Board of Directors. Contributions to the
plan for the year ended December 31, 1995, totaled $45,503. The trustees of the
ESOP are also members of the Company's Board of Directors.
In 1990, the Company adopted an incentive compensation program for its key
employees. Bonuses are awarded to key employees based on a prescribed formula
using the Company's return on assets as a base. For the year ended December 31,
1995, $120,000 was paid under the provisions of the incentive compensation
program. The amounts awarded to the Chief Executive Officer are shown in the
bonus column of the Compensation Table.
CHANGE OF CONTROL AGREEMENT.
- ----------------------------
Effective January 26, 1996, the Company entered into an agreement with H.
Charles Maddy, III, its Chief Executive Officer, to encourage him not to
terminate his employment with the Company because of the possibility that the
Company might be acquired by another entity (the "Agreement"). The Board of
Directors determined that such an arrangement was appropriate, especially in
view of the recent entry of large regional bank holding companies into West
Virginia. The agreements were not undertaken in the belief that a change of
control of the Company was imminent.
Generally, the Agreement provides severance compensation to Mr. Maddy if
his employment should end under certain specified conditions after a change of
control. Compensation is paid upon any involuntary termination following a
change of control unless Mr. Maddy is terminated for cause. In addition,
compensation will be paid after a change of control if Mr. Maddy voluntarily
terminates employment because of (i) a decrease in the total amount of Mr.
Maddy's base salary below the level in effect on the date of consummation of the
change of control, without Mr. Maddy's consent; (ii) a material reduction in the
importance of Mr. Maddy's job responsibilities without his consent, (iii)
geographical relation of Mr. Maddy without his consent to an office more than
twenty
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<PAGE>
77-85
(20) miles from his location at the time of a change of control; (iv) failure by
the Company to obtain assumption of the contract by its successor, (v) failure
of the Company to give notice of termination as required in the Agreement, or
(vi) any removal of Mr. Maddy from, or failure to reelect Mr. Maddy to any
position with the Company or Bank that he held immediately prior to the change
in control without his prior written consent (except for good cause, death,
disability or retirement).
Under the Agreement, a "change of control" is deemed to occur in the event
of (i) a change of ownership of the Company which must be reported to the
Securities and Exchange Commission as a change of control, including but not
limited to the acquisition by any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934 (the "Exchange Act"))
of direct or indirect "beneficial ownership" (as defined by Rule 13d-3 under the
Exchange Act) of twenty-five percent (25%) or more of the combined voting power
of the Company's then outstanding securities, or (ii) the failure during any
period of three (3) consecutive years of individuals who at the beginning of
such period constitute the Board for any reason to constitute at least a
majority thereof, unless the election of each director who was not a director at
the beginning of such period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors at the beginning of the
period, or (iii) the consummation of a "Business Combination" as defined in the
Company's Articles of Incorporation.
Under the Agreement, severance benefits include: (a) cash payment equal to
Mr. Maddy's monthly base salary in effect on either (i) the date of termination;
or (ii) the date immediately preceding the change of control, whichever is
higher, multiplied by the number of full months between the date of termination
and the date that is twenty-four (24) months after the date of consummation of
the change of control; (b) payment of cash incentive award, if any, under the
Company's bonus plan; (c) continuing participation in employee benefit plans and
programs such as retirement, disability and medical insurance for a period of
twenty-four (24) months following the date of termination.
Mr. Maddy also has the right to terminate his employment without reason by
giving written notice of termination within six (6) months of consummation of
any change of control. In such event, Mr. Maddy will be entitled to receive a
lump sum equal to 75% of his salary, as defined in the Agreement.
The Agreement does not effect the right of the Company to terminate Mr.
Maddy, or change the salary or benefits of Mr. Maddy, with or without good
cause, prior to any change of control; provided, however, any termination or
change which takes place after discussions have commenced which result in a
change of control will be presumed to be a violation of the agreement and will
entitle the officer to the benefits under the agreement, absent clear and
convincing evidence to the contrary.
13
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TRANSACTIONS WITH DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS.
- -----------------------------------------------------------------
Directors and executive officers of South Branch Valley Bancorp, Inc. and
subsidiary, members of their immediate families, and business organizations and
individuals associated with them have been customers of, and have had normal
banking transactions with South Branch Valley National Bank. All such
transactions were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
Director Oscar M. Bean is a partner in the law firm of Bean & Bean which
has served as counsel for South Branch Valley National Bank in a number of
matters during the year. It is anticipated that this relationship will continue
in 1996. Fees paid by the Bank to the law firm of Bean & Bean were less than 5%
of the law firm's gross revenues in 1995.
STOCK TRANSFERS.
- ---------------
Shares of the Company's common stock are occasionally bought and sold by
private individuals, firms or corporations. In many instances, the Company does
not have knowledge of the purchase price or the terms of the purchase. No
definitive records of bids and ask or sale prices are available. The Company has
engaged Ferris, Baker, Watts Incorporated as its market maker for its common
stock. Persons interested in buying or selling the Company's common stock should
contact David J. Miller at 1-800-505-2030. The company may also be reached at
the following address:
David J. Miller, CPA
Ferris, Baker Watts, Inc.
704 4th Avenue
Huntington, WV 25701
INDEPENDENT PUBLIC ACCOUNTANT.
- ------------------------------
At the meeting, the shareholders of the Company will be asked to ratify
the selection of the firm of Arnett & Foster, certified public accountants, of
1000 Laidley Tower, 500 Lee Street East, Charleston, West Virginia 25329, as the
Company's independent auditors for the year ending December 31, 1996. A member
of the firm will be available to respond to shareholder inquiries at the annual
meeting.
REPORTING OF SECURITIES TRANSACTIONS.
- -------------------------------------
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission (the "SEC") regulations, the Company's
directors, executive officers and greater than ten percent shareholders are
required to file reports of ownership and changes in
14
<PAGE>
79-85
ownership with the SEC and to furnish the Company with copies of all such
reports they file. Based solely upon submissions of copies of reports to the
Company, the Company is aware that Messrs. Maddy, Ratliff, Pavan and Jennings
inadvertently filed one late report required by Section 16(a) of the Securities
Act. For Messrs. Maddy, Ratliff and Pavan, the transaction involved the
acquisition of shares on their behalf by the Company's Employee Stock Ownership
Plan. For Mr. Jennings, the late filing involved his initial statement of
beneficial stock ownership on Form 3. A remedial filing was made as soon as
possible after the discovery of these delinquencies.
OTHER MATTERS.
- -------------
The Board of Directors does not intend to bring other matters before the
meeting except items incident to the context of the meeting. However, on all
matters properly brought before the meeting by the Board or by others, the
persons named as proxies in the accompanying proxy, or their substitutes, will
vote in accordance with the recommendations of the Board of Directors.
SHAREHOLDER PROPOSALS.
- ----------------------
To be included in the Board of Directors' Proxy Statement for the 1997
Annual Meeting of Shareholders, a shareholder's proposal must be received by the
Company on or before December 31, 1996. The proposal should be directed to the
secretary of the Company at 310 North Main Street, Moorefield, West Virginia
26836.
ANNUAL REPORT.
- --------------
The annual report of the Company for the year ended December 31, 1995 is
being mailed concurrently with this Proxy Statement. The financial statements
and other information to be delivered with this Proxy Statement constitute the
annual disclosure statement as required by 12 C.F.R. 18.
FORM 10-KSB.
- ------------
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON THE REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT FORM 10-KSB FOR 1995. REQUESTS FOR COPIES OF SUCH REPORT SHOULD BE
DIRECTED TO CAROL A. RIGGLEMAN, ASSISTANT SECRETARY, SOUTH BRANCH VALLEY
BANCORP, INC., P.O. BOX 680, MOOREFIELD, WEST VIRGINIA 26836.
By Order of the Board of Directors
Dated: March 1, 1996
15
80-85
E X H I B I T (21)
Subsidiaries of the Registrant
<PAGE>
81-85
Exhibit 21
SOUTH BRANCH VALLEY BANCORP, INC.
SUBSIDIARIES OF REGISTRANT
The following lists the subsidiary of the registrant, a West Virginia
Corporation.
South Branch Valley National Bank, a national
banking association organized under the laws
of the United States of America
82-85
E X H I B I T (23)
Consent of Independent Certified Public Accountants
<PAGE>
83-85
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
Securities and Exchange Commission
Washington, D.C.
We hereby consent to the incorporation by reference in this Annual Report
on Form 10-KSB of our report dated January 12, 1996 on our audit of the
consolidated financial statements of South Branch Valley Bancorp, Inc. as of
December 31,1995 and 1994, and for the three years in the period ended December
31, 1995, appering in the 1995 Annual Report to Shareholders of South Branch
Valley Bancorp, Inc.
Arnett & Foster
Charleston, West Virginia
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING PURSUANT TO RULE 901 (D) OF
REGULATION S-T.
</LEGEND>
<CIK> 0000811808
<NAME> SOUTH BRANCH VALLEY NATIONAL BANK
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,191,647
<INT-BEARING-DEPOSITS> 92,213,562
<FED-FUNDS-SOLD> 2,161,745
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,480,580
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<ALLOWANCE> (859,681)
<TOTAL-ASSETS> 113,117,858
<DEPOSITS> 100,046,336
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<LIABILITIES-OTHER> 992,862
<LONG-TERM> 750,000
0
0
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<TOTAL-LIABILITIES-AND-EQUITY> 113,117,858
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<EXPENSE-OTHER> 2,866,062
<INCOME-PRETAX> 1,999,832
<INCOME-PRE-EXTRAORDINARY> 1,320,156
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<EPS-PRIMARY> 3.49
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<LOANS-NON> 538,239
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<PAGE>
</TABLE>
