SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One):
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1996,
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to .
Commission File Number: 0-23878
BECKLEY BANCORP, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0733525
- -------- ----------
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.
200 Main Street, Beckley, West Virginia 25801
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 252-6201
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B 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 amendment to
this Form 10-KSB.
[ X ]
State issuer's revenues for its most recent fiscal year. $3.2 million.
As of March 14, 1997, there were issued and outstanding 601,465 shares of
the registrant's Common Stock.
The registrant's voting stock is traded over-the-counter. The aggregate
market value of the voting stock held by non-affiliates of the registrant, based
on the average bid and ask price of the registrant's common stock on March 14,
1997, was $9.3 million (based on $19.75 per share).
Transition Small Business Disclosure Format (check one)
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year ended
December 31, 1996. (Parts I and II)
2. Portions of proxy statement dated April 21, 1997 (Part III)
<PAGE>
PART I
Item 1. Business
- ------- --------
The Company
Beckley Bancorp, Inc. (the "Company") is a Delaware corporation organized
in 1994 at the direction of the Board of Directors of Beckley Federal Savings
Bank (the "Bank" or "Beckley Federal") to acquire all of the capital stock that
the Bank issued upon its conversion from the mutual to stock form of ownership.
The OTS approved the Holding Company's application to become a savings and loan
holding company and the Holding Company used 50% of the net proceeds from the
issuance of the Common Stock to purchase all of the common stock of the Bank
issued upon Conversion.
The Bank
Beckley Federal, a wholly owned subsidiary of the Company, was founded in
1939 and is primarily engaged in attracting deposits from the general public and
using those funds to originate mortgage loans for the purchase or refinance of
single-family homes in Beckley, West Virginia, and surrounding communities, and
for the purchase of mortgage-backed and other securities. To a lesser extent,
the Bank makes consumer loans. To an even lesser extent, the Bank makes
nonresidential real estate loans and construction loans. The Bank has a branch
office located at 1723 Harper Road, Beckley, West Virginia.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment and maturity of loans and investment
securities. Primary sources of income are interest and fees on loans and
investment securities and customer service fees and commissions. The Bank's
primary expense is interest paid on deposits.
Market Area/Competition
Among its other lending activities, Beckley Federal has focused on serving
its customers located in Beckley, West Virginia and surrounding communities in
Raleigh County, West Virginia. The Bank's immediate market area features a
variety of industries such as coal mining and related support industries, health
care, retailing, tourism, and light manufacturing. Raleigh County has a
population of 77,000 with approximately 76% of the residents living in the
Bank's primary market area. During the past several years, the performance of
the West Virginia economy has generally been less than that of the national
economy and many other state economies with per capita income levels
significantly below other areas of the country and unemployment rates
substantially higher, although there has been some economic resurgence in recent
periods for the reasons discussed below.
The Beckley/Raleigh County area is served by two major interstate highway
systems. Since the completion of the interstate system in 1990, the
Beckley/Raleigh County area has experienced a growth in population and in the
establishment of new businesses accompanied by an increase in tourism. This
growth has helped to strengthen the retail segment of the local economy. In
addition, a new federal prison has been constructed in the Raleigh County area
and construction has begun on a federal office building in downtown Beckley.
<PAGE>
Lending Activities
General. The principal lending activity of Beckley Federal continues to be
the origination of mortgage loans for the purpose of financing or refinancing
one- to four-family residential real estate. However, during the past two years,
the Bank has diversified its lending products and has begun to originate
non-mortgage loans, primarily those secured by automobiles. Although
non-mortgage loans generally have a higher amount of risk associated with the
potential decline in the value of the collateral, such loans provide a
relatively short-term high yielding investment when compared to mortgage loans.
The non-mortgage portfolio has performed at or above levels expected by
management. As of December 31, 1996, the Bank had only experienced one
charge-off of approximately $4,000 in its non-mortgage loan portfolio.
During the year ended December 31, 1996, the Bank originated approximately
$4.5 million of mortgage loans, primarily secured by one- to four-family
residential real estate. During the same period, the Bank originated
approximately 500 non-mortgage loans totalling $5.9 million. Such loans were
primarily secured by new and used automobiles. Total loans, net of the allowance
for loan losses and deferred loan origination fees and costs, increased $4.2
million, or 26.4% during the year.
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percent of the respective portfolios at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1996 1995
-------------------- -------------------
$ % $ %
Real Estate Mortgage Loans: (Dollars in Thousands)
- ---------------------------
<S> <C> <C> <C> <C>
Residential 1-4 Family............. $13,102 35.74% $12,214 36.01%
Commercial/Multi-Family............ 1,409 3.84 1,237 3.65
Construction....................... 96 .26 103 .30
Commercial Business Loans.......... 103 .28 25 .07
Consumer Loans:
Savings account.................. 617 1.68 617 1.82
Automobile....................... 4,895 13.35 1,914 5.64
Other consumer................... 284 .77 142 .42
Less:
Deferred loan origination fees
and costs...................... (23) (.06) (32) (.09)
Allowance for losses on loans.... (303) (.82) (255) (.75)
------ ----- ------- ----
Total loans, net................... 20,180 55.04 15,965 47.07
Mortgage-Backed and related
securities (1-4 Family)(1)....... 16,484 44.96 17,954 52.93
------ ----- ------ -----
Total loans and mortgage-backed
and related securities, net.... $36,664 100.00% $33,919 100.00%
====== ====== ====== ======
</TABLE>
- --------------------
(1) Reported at fair value in accordance with SFAS 115. The amortized cost of
such securities at December 31, 1996 and 1995 was $17.00 million and $18.02
million, respectively.
-2-
<PAGE>
The following table sets forth the contractual maturities of the Bank's
loan portfolio at December 31, 1996. The table does not consider prepayments.
Prepayments and scheduled principal repayments on loans totalled $6.8 million
for the year ended December 31, 1996.
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------------------------------------------------------
Mortgage- Consumer
Backed and 1-4 Family and
Related Real Estate Commercial/ Commercial
Securities(1) Mortgage Multi-Family Construction Business Total
----------- --------- ------------ ------------ ------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing............ $ -- $ 53 $ -- $ -- $ 54 $ 107
Amounts Due:
Within 3 months........... -- 593 31 -- 117 741
3 months to 1 Year........ -- 2,425 -- -- 486 2,911
After 1 year:
1 to 3 years............ -- 211 479 96 739 1,525
3 to 5 years............ 306 1,204 36 -- 4,377 5,923
5 to 10 years........... 199 2,042 230 -- 126 2,597
Over 10 years........... 15,979 6,574 633 -- -- 23,186
------ ----- --- ----- ----- ------
Total due after one year.. 16,484 10,031 1,378 96 5,242 33,231
------ ------ ----- ----- ----- ------
Total amount due.......... 16,484 13,102 1,409 96 5,899 36,990
------ ------ ----- ----- ----- ------
Less:
Allowance for losses on loans -- (130) (14) (1) (158) (303)
Deferred loan fees and other -- (20) (3) -- -- (23)
------- ------ ----- ----- ----- ------
Loans receivable, net... $16,484 $12,952 $1,392 $ 95 $5,741 $36,664
====== ====== ===== ===== ===== ======
</TABLE>
The following table sets forth the dollar amount of all loans and
mortgage-backed and related securities, which have fixed interest rates and
which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
Real estate loans: (In thousands)
<S> <C> <C> <C>
One- to four-family..... $9,037 $4,065 $13,102
Multi-family............ -- 31 31
Commercial real estate.. 1,301 45 1,346
Construction............ -- 96 96
Land.................... 32 -- 32
Consumer and commercial
business................. 5,894 5 5,899
------ ----- ------
Total loans.............. $16,264 $ 4,242 $20,506
Mortgage-backed and related
securities............... 1,084 15,400 16,484
------ ------ ------
Total.................... $17,348 $19,642 $36,990
====== ====== ======
</TABLE>
-3-
<PAGE>
Residential Mortgage Loans. The Bank's primary lending activity consists
of the origination of one- to four-family, owner-occupied, residential mortgage
loans secured by property located in the Bank's primary market area. The
majority of the Bank's residential mortgage loans consist of loans secured by
owner-occupied, single-family residences.
The Bank primarily originates loans secured by first deeds of trust on
real property. The Bank's mortgage loan portfolio consists of both fixed-rate
and adjustable-rate loans secured by various types of collateral as discussed
below. As of December 31, 1996, the average remaining term to maturity of the
bank's mortgage portfolio was 163 months. Management expects to continue
offering mortgage loans at market interest rates, with substantially the same
terms and conditions.
The Bank originates 15- and 20-year fixed-rate mortgage loans intended
primarily for retention in the Bank's loan portfolio. The Bank also originates
adjustable-rate mortgage loans with terms ranging from 5 to 30 years. The
majority of mortgage loans are amortized on a monthly basis. Generally, all
loans are originated for retention in the Bank's loan portfolio.
The Bank originates construction loans to finance the construction of
residential property. These loans are generally made to private individuals who
have contracted with a licensed general contractor. The Bank closely supervises
the construction process and disburses all funds during the course of the
construction period. These loans are structured to be converted to permanent
loans at the end of the construction period.
Beckley Federal's residential first mortgage loans customarily include
due-on-sale clauses, which are provisions giving the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the real property serving as security
for the loan. Due-on-sale clauses are an important means of adjusting the rates
on the Bank's fixed-rate mortgage portfolio, and the Bank has generally
exercised its rights under these clauses.
Regulations limit the amount which a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and
between 65% and 85% for all other real estate loans, depending on the type of
property. The Bank has the following lending policies: loans secured by
residential properties must have a loan to value ratio of 80% or less, unless
private mortgage insurance is obtained; loans for construction will generally be
originated for up to 80% of the appraised value of the property; and,
non-residential mortgage loans are generally granted for up to 75% of the
appraised value of the securing property.
Consumer and Commercial Business Loans. Regulations permit
federally-chartered savings associations to make secured and unsecured consumer
loans up to 35% of the Bank's assets. In addition, the Bank has lending
authority above the 35% category for certain consumer loans, such as second
mortgage loans and loans secured by savings accounts. Beckley Federal originates
consumer and commercial business loans secured by a variety of collateral as
discussed below. Management has committed to increase the Bank's consumer loan
portfolio to provide a short term investment vehicle yielding a relatively
higher rate of return, consistent with the Bank's underwriting policy for these
loans.
Beckley Federal originates consumer loans secured by savings accounts and
certificates of deposit. The Bank will generally lend up to 95% of the amount in
the deposit account that is held as collateral. Interest payments are generally
due no less frequently than quarterly. Loans secured by deposit accounts are
made at an interest rate which is 200 basis points above the effective interest
rate paid on the deposit account.
-4-
<PAGE>
Beckley Federal originates both secured and unsecured consumer loans. The
Bank accepts a variety of collateral as security for these loans including
automobiles, boats, motorcycles, and farm equipment. The Bank generally lends
between 80% and 100% of the purchase price on new automobiles and between 80%
and 100% of the purchase price or the loan value on used automobiles. On loans
secured by collateral other than automobiles, the Bank will generally loan
between 80% and 100% of the purchase price or loan value, depending primarily
upon the type of collateral being used to secure the loan.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and/or the lack of demand for used
automobiles.
Commercial/Multi-Family Mortgage Loans. The Bank originates mortgage loans
secured by commercial and multi-family (5 or more units) real estate, community
service facilities such as churches, or small business properties. The Bank does
not actively promote commercial or multi-family lending and does not consider
them to be a primary lending activity.
Loans secured by commercial and multi-family properties generally involve
a greater degree of risk than residential mortgage loans and carry larger loan
balances. This increased credit risk is a result of several factors, including
the concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired.
Loan Solicitation and Processing. Loan originations are derived from a
number of sources such as real estate broker referrals, customers, borrowers,
builders and walk-in customers.
Upon receipt of a loan application, a credit report is ordered and
reviewed to verify specific information relating to the loan applicant's
creditworthiness. In the case of mortgage loans, written verifications of
employment and deposits are sent to the applicant's employer and their bank,
respectively. Also, the Bank requires that an appraisal of the real estate
intended to secure the proposed loan is undertaken by an independent appraiser
approved by the Bank. After all of the information required to make a credit
decision is obtained, two members of the Bank's Executive Committee review the
loan application file and make a decision whether to approve the loan. Upon
approval, the applicant is verbally notified and, in the case of mortgage loans,
a title report is immediately ordered. The Board ratifies loan decisions
monthly.
The Bank does not require mortgagor title insurance policies on its
mortgage loans. However, the bank does require proof of hazard insurance
providing coverage on the property securing the loan.
-5-
<PAGE>
If the loan is approved, the loan commitment specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate
and amortization term. The borrower must provide proof of fire, and flood (if
applicable) insurance on the property serving as collateral, which insurance
must be maintained during the full term of the loan. The Bank requires that an
acceptable title report must be issued by its attorneys on all mortgage loans.
Loan Originations and Mortgage-Backed and Related Securities Purchased.
The following table sets forth the Bank's gross originations, mortgage-backed
and related securities purchases, and principal repayments for the periods
indicated. During the periods shown, the Bank sold no loans.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Total gross loans receivable at
beginning of period......................... $34,206 $28,545
====== ======
Loans originated:
1 to 4 family residential.................... $ 3,882 $ 3,227
Consumer..................................... 5,774 3,269
Commercial/Multi-Family...................... 398 661
Construction................................. 214 399
Commercial business.......................... 141 51
------ ------
Total loans originated......................... $10,409 $ 7,607
====== ======
Total mortgage-backed and related securities
purchased(1) $ -- $ 3,933
====== ======
Loan principal repayments...................... $ 6,764 $ 7,145
====== ======
Other.......................................... (861)(1) 1,266(1)
------- ------
Net loan activity.............................. $ 2,784 $ 5,661
====== ======
Total gross loans receivable at end of period.. $36,990 $34,206
====== ======
</TABLE>
- ---------------------
(1) Includes an adjustment to reflect the fair value of the Bank's
mortgage-backed and related securities in accordance with SFAS 115.
Loan Commitments. Upon loan approval by members of the Executive
Committee, the Bank makes a verbal commitment to the loan applicant as to the
amount, term and interest rate of the loan. The commitment is generally good for
thirty days. Loan commitments at December 31, 1996 totalled $133,000.
Approximately 99% of the Bank's commitments are usually funded before their
expiration.
No fee is charged for this type of commitment.
The Bank generally charges a commitment fee where the loan commitment
period exceeds ninety days. This fee is normally 1.0% of the amount of the
commitment.
Loan Fees and Service Charges. In addition to interest earned on loans,
the Bank generally recognizes fees and service charges which consist primarily
of loan origination fees and late charges. Interest income from loans included
approximately $15,000 of loan origination fees and late charge fees for each of
the years ended December 31, 1996 and 1995.
-6-
<PAGE>
Loan origination and commitment fees are volatile sources of income. Such
fees vary with the volume and type of loans and commitments made and purchased
and with competitive conditions in the mortgage markets, which in turn respond
to the demand and availability of money.
Loans to One Borrower. Savings associations are subject to the same limits
as those applicable to national banks, which limit loans to one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured
basis and an additional amount equal to 10% of unimpaired capital and unimpaired
surplus if the loan is secured by readily marketable collateral (generally,
financial instruments and bullion, but not real estate) or $500,000, whichever
is higher. At December 31, 1996 the Bank's loan to one borrower limit was $1.2
million. At December 31, 1996, the Bank's largest exposure to one borrower was
$472,000 and was secured by an 18-hole golf course located on approximately 126
acres of land.
Delinquencies and Asset Classification. The Bank's collection procedures
provide that when a loan is more than 15 days past due, a late charge is added
and the borrower is contacted by mail or telephone and payment is requested. If
the delinquency continues, subsequent efforts are made to contact the delinquent
borrower. For mortgage loans delinquent for 90 days or more, the Bank generally
initiates foreclosure proceedings unless other repayment arrangements are made.
For secured consumer loans, the Bank generally repossesses the collateral prior
to the delinquency reaching 90 days and legal remedies are pursued to collect
deficiencies, if any. For unsecured consumer loans, legal action is taken when
the Bank determines that a loan is otherwise uncollectible. Each delinquent loan
is reviewed on a case by case basis.
Delinquent loans are reviewed on a regular basis and are placed on a
non-accrual status when the loan becomes 90 days delinquent and, in the opinion
of management, the collection of additional interest is doubtful. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as foreclosed real estate until such time as
it is sold. When foreclosed real estate is acquired, it is recorded at the lower
of the unpaid principal balance of the related loan or its fair value, based
upon a current appraisal. Any write-down of foreclosed real estate is charged to
the allowance for real estate losses. At December 31, 1996, the Bank had no
property acquired as the result of foreclosure or by deed in lieu of foreclosure
and classified as foreclosed real estate.
Repossessed assets are recorded at the lower of the unpaid principal
balance of the related loan or the assets' fair value, as determined by
management. Any write-down is charged to the allowance for consumer loan losses.
At December 31, 1996, the Bank held no repossessed assets.
-7-
<PAGE>
At December 31, 1996 and 1995, delinquencies in the Bank's loan portfolio
were as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------
1996 1995
------ -----
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------ ----------------- ------------ ----------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-
family........ 2 $ 74 3 $ 53 4 $63 3 $53
Multi-family.... -- -- -- -- -- -- -- --
Commercial -- -- -- --
real estate.... -- -- -- --
Land............ -- -- -- -- -- -- -- --
Consumer and
commercial
business....... -- -- -- -- -- -- -- --
--- --- --- --- -- -- -- --
Total........ 2 $ 74 3 $ 53 4 $63 3 $53
=== === === === == == == ==
Delinquent loans
to total loans .36% .26% .39% .33%
</TABLE>
Uncollectible interest on loans that are contractually past due is charged
off, or an allowance is established based on management's periodic evaluation of
its portfolio. The allowance is established by a charge to interest income equal
to all interest previously accrued, and income is subsequently recognized only
to the extent that cash payments are received until, in management's judgment,
the borrower has the ability to make periodic interest and principal payments or
is no longer delinquent, and the loan is returned to accrual status. The Bank
ceases the accrual of interest on delinquent loans upon foreclosure. At December
31, 1996, the Bank had no restructured loans within the meaning of Statement of
Financial Accounting Standard ("SFAS") 15. The following table sets forth
information regarding loans which are 90 days or more delinquent.
At December 31,
---------------
1996 1995
---- ----
(In thousands)
Loans 90 days or more delinquent(1)........ $ 53 $ 53
Foreclosed real estate..................... -- --
--- ----
Total non-performing assets............ $ 53 $ 53
=== ===
- ----------------------
(1) Interest on loans 90 days or more delinquent is 100% reserved. At December
31, 1996 and 1995, the balance of the reserve for accrued interest on
loans delinquent 90 days or more was $1,200 and $1,800, respectively. At
December 31, 1996 and 1995, the Bank had no loans accounted for on a
nonaccrual basis which were less than 90 days past due.
Classified Assets. OTS regulations provide for a specific classification
system for problem assets of insured institutions. Under this classification
system, problem assets of insured institutions are classified as "substandard,"
"doubtful," or "loss." An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any.
-8-
<PAGE>
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets designated
"special mention" by management are assets included on the Bank's internal
watchlist because of potential weakness but which do not currently warrant
classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for credit losses
in an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
provision for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for credit losses generally do not qualify
as regulatory capital.
At December 31, 1996, the Bank's problem assets were as follows: $128,000
were designated special mention, $53,000 were classified as substandard and none
were classified as doubtful or loss. At December 31, 1996, the Bank had loss
allowances of $303,000. Management believes that the Bank's current loan loss
allowance is sufficient to cover any potential losses.
Allowance for Losses on Loans, Real Estate Owned, and Repossessed Assets.
It is management's policy to provide for losses on unidentified loans in its
loan portfolio as well as on classified loans and foreclosed real estate. A
provision for loan losses is charged to operations based on management's
evaluation of the potential losses that may be incurred in the Bank's loan
portfolio. Management has established minimum standards for its general
reserves. On mortgage loans, a minimum of 1% of the outstanding loan balances at
the end of each quarter is reserved. On consumer loans, a minimum of 3% of the
outstanding loan balances at the end of each quarter is reserved. In addition to
these general reserves, the Bank reserves 10% of substandard assets and 100% of
assets classified as doubtful or loss.
Also, when foreclosed real estate is acquired, it is recorded at the lower
of the unpaid principal balance of the related loan or its fair value based upon
a current appraisal. Repossessed assets are recorded at the lower of the unpaid
principal balance of the related loan or the assets' fair value as determined by
management using information obtained by valuation guides or from dealers
familiar with the particular type of asset. Management periodically performs
valuations of these assets and establishes valuation allowances to reduce the
book value of the assets to their net realizable value when necessary.
Management will continue to review the entire loan portfolio to determine
the extent, if any, to which further additional loan loss provisions may be
deemed necessary. There can be no assurance that the allowance for loan losses
will be adequate to cover losses which may in fact be realized in the future and
that additional provisions for losses on loans and real estate owned will not be
required.
-9-
<PAGE>
Allowance Analysis. The following table sets forth the Bank's allowance for
losses on loans.
At or For the Year Ended
December 31,
------------
1996 1995
---- ----
(Dollars in thousands)
Allowance for credit losses:
Balance at beginning of period................ $ 255 $ 174
----- -----
Charge-offs.................................. 4 --
Recoveries.................................. -- --
Provisions charged to income................ 52 81
----- -----
Balance at end of period...................... $ 303 $ 255
===== =====
Ratio of allowance for losses to total
loans at the end of the period.............. 1.48% 1.57%
Allowance by Loan Category. The following table sets forth the Bank's
allocation of the allowance for losses on loans by loan category and the percent
of loans in each category to total loans receivable at the dates indicated. The
portion of the allowance for losses on loans allocated to each loan category
does not represent the total available for future losses which may occur within
the loan category.
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995
---- ----
Percent of
Loans in Percent of
Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Residential, Commercial and Multi-Family
Real Estate (1)................ $ 145 71.23% $ 145 83.40%
Consumer and Commercial Business Loans 158 28.77 110 16.60
---- ------ --- -----
Total............................ $ 303 100.00% $ 255 100.00%
==== ====== ==== ======
</TABLE>
- --------------
(1) The allowance is based on general reserves calculated on the outstanding
balance of the entire loan portfolio.
Mortgage-Backed and Related Securities and Investment Activities. The
investment policy of the Bank, which is established by senior management and
approved by the Board of Directors, is based upon its asset and liability
management goals and is designed primarily to provide a portfolio of high
quality, diversified investments while seeking to optimize net interest income
within acceptable limits of safety and liquidity. Investments generally are made
with the intent of holding them to maturity, however, to maintain flexibility,
the Bank generally classifies such investments as "available-for-sale" and
accounts for them at their fair values. The Bank's current investment goal is to
invest available funds in instruments that meet specific requirements of the
Bank's asset and liability management goals. The
-10-
<PAGE>
investment activities of the Bank consist primarily of investments in
mortgage-backed and related securities, and, to a lesser extent, other
securities consisting primarily of securities issued or guaranteed by the United
States Government or agencies thereof. At December 31, 1996, the fair value of
the investment securities portfolio was $7.0 million and the fair value of the
mortgage-backed and related securities portfolio was $16.5 million.
Investments. The following table sets forth certain information regarding
the amortized cost and fair values of the Bank's interest bearing deposits,
investment securities, and mortgage-backed and related securities at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1996 1995
------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Interest bearing deposits........................ $916 $916 $ 965 $ 965
=== === ====== ======
Investment securities:
Held-to-Maturity:
U.S. agency securities....................... $997 $997 $ 3,993 $ 3,993
Marketable equity securities................. -- --
Available-for-sale:
U.S. agency securities....................... 4,986 4,976 4,216 4,205
Marketable equity securities................. 36 1,022 61 816
------ ----- ------- -------
Total investment securities................ $6,019 $6,995 $ 8,270 $ 9,014
===== ===== ====== ======
Mortgage-backed and Related Securities:
Held-to-Maturity:
Mortgage-backed participation certificates... $ -- $ -- $ -- $ --
Collateralized mortgage obligations.......... -- -- -- --
Available-for-sale:
Mortgage-backed participation certificates... 4,341 4,354 4,968 5,054
Collateralized mortgage obligations.......... 12,665 12,130 13,054 12,900
------ ------ ------ ------
Total mortgage-backed and related securities... 17,006 16,484 18,022 17,954
------ ------ ------ ------
Total investments.......................... $23,941 $24,395 $27,257 $27,933
====== ====== ====== ======
</TABLE>
-11-
<PAGE>
Investment Yields and Maturities.
The following table sets forth certain information regarding the amortized
cost, weighted average rates and contractual maturities of the Bank's investment
securities portfolio at December 31, 1996.
<TABLE>
<CAPTION>
As of December 31, 1996
----------------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Fair
Cost Rate Cost Rate Cost Rate Cost Rate Cost Rate Value
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S.
Agency
Securities.. $2,492 4.7% $2,491 5.6% $1,000 8.0% $ -- --% $5,983 5.6% $5,973
Marketable
Equity
Securities.. 36 36.1 -- -- -- -- -- -- 36 36.1 1,022
----- ---- ------ ------ ------ ---- ------ ------ ----- ---- -----
Total....... $2,528 5.2% $2,491 5.6% $1,000 8.0% $ -- --% $6,019 5.8% $6,995
===== ==== ===== === ===== === ====== ====== ===== ==== =====
</TABLE>
-12-
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, Beckley Federal derives
funds from amortization and prepayment of loans, sale or maturities of
investment securities and operations. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and market
conditions. The Bank does not generally use borrowings.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad selection
of deposit instruments including NOW, regular savings, money market deposit,
term certificate accounts and individual retirement accounts. Deposit account
terms vary according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors. The Bank
regularly evaluates the internal cost of funds, surveys rates offered by
competing institutions, reviews the Bank's cash flow requirements for lending
and liquidity and executes rate changes when deemed appropriate. The Bank does
not obtain funds through brokers, nor does it actively solicit funds outside of
the State of West Virginia.
The following table sets forth average balances and rates for various
deposit categories for the year ended December 31, 1996.
Average Average
Balance Rate
------- ----
(In Thousands)
Savings Accounts.................... 7,591 3.08%
NOW and Money Market Deposit Accounts 5,195 2.39
Certificate of Deposit Accounts..... 19,484 5.07
Certificates of Deposit of $100,000 or More. Although the Bank offers
certificates of deposit with balances of $100,000 or more, the Bank generally
does not offer a higher interest rate for such deposits. The following table
indicates the amount of the Bank's certificates of deposit of $100,000 or more
by time remaining until maturity as of December 31, 1996:
Certificates
Maturity Period of Deposit
--------------- ----------
(In Thousands)
Within three months............................ $ 848
Three through six months..................... . 1,999
Six through twelve months...................... 200
Over twelve months............................. 792
-----
$3,839
Borrowings. Deposits are the primary source of funds of the Bank's lending
and investment activities and for its general business purposes. The Bank
maintains a line of credit with the FHLB of Pittsburgh. The Bank, if the need
arises, may also access the Federal Reserve Bank discount window to supplement
its supply of lendable funds and to meet deposit withdrawal requirements. At
December 31, 1996, the Bank had $2.0 million in outstanding short term advances
from the FHLB of
-13-
<PAGE>
Pittsburgh. The weighted-average interest rate on such advances was 5.74% and
the weighted average remaining maturity was 46 days. The advances will be repaid
with the proceeds of maturing investment securities.
Personnel
As of December 31, 1996, the Bank had 13 full-time employees and one
part-time employee. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Regulation
Set forth below is a summary description of certain laws which relate to
the regulation of the Bank and the Company. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Bank Regulation
General. As a federally chartered, Savings Association Insurance Fund
("SAIF")-insured savings association, the Bank is subject to extensive
regulation by the OTS and the Federal Deposit Insurance Corporation ("FDIC").
Lending activities and other investments must comply with various federal
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator. The FDIC may also prohibit an insured depository institution
from engaging in any activity the FDIC determines to pose a serious threat to
the SAIF.
-14-
<PAGE>
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase deposit insurance rates on a
semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC. Prior to
September 30, 1996, savings associations paid within a range of .23% to .31% of
domestic deposits and the SAIF was substantially underfunded. By comparison,
prior to September 30, 1996, members of the Bank Insurance Fund ("BIF"),
predominantly commercial banks, were required to pay substantially lower, or
virtually no, federal deposit insurance premiums.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. The Bank recorded a $212,000 pre-tax
expense for this assessment at September 30, 1996. Beginning January 1, 1997,
deposit insurance assessments for SAIF members were reduced to approximately
.064% of deposits on an annual basis; this rate may continue through the end of
1999. During this same period, BIF members are expected to be assessed
approximately .013% of deposits. Thereafter, assessments for BIF and SAIF
members should be the same and the SAIF and BIF may be merged. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 70% from rates in effect prior to September 30,
1996.
Regulatory Capital Requirements. Set forth below is the Bank's regulatory
capital requirements applicable to it as of December 31, 1996:
Percent
of Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Regulatory requirement............ $ 685 1.5%
Actual capital.................... 7,723 16.9
------ -----
Excess.......................... $ 7,038 15.4%
====== =====
Core Capital:
Regulatory requirement............ $ 1,371 3.0%
Actual capital.................... 7,723 16.9
------ -----
Excess.......................... $ 6,352 13.9%
====== =====
Risk-Based Capital:
Regulatory requirement(1)......... $ 1,503 8.0%
Actual capital.................... 7,958 42.4
------ -----
Excess.......................... $ 6,455 34.4%
====== =====
- --------------------
(1) Based on risk-weighted assets of $18,790.
-15-
<PAGE>
Net Portfolio Value. In recent years, the Bank has measured its interest
rate sensitivity by computing the "gap" between the assets and liabilities which
were expected to mature or reprice within certain periods, based on assumptions
regarding loan prepayment and deposit decay rates formerly provided by the OTS.
However, the OTS now requires the computation of amounts by which the net
present value of an institution's cash flows from assets, liabilities and off
balance sheet items (the institution's net portfolio value, or "NPV") would
change in the event of a range of assumed changes in market interest rates. The
OTS also requires the computation of estimated changes in net interest income
over a four-quarter period. These computations estimate the effect of an
institution's NPV and net interest income of instantaneous and permanent 1% to
4% increases and decreases in market interest rates. In the Bank's interest rate
sensitivity policy, the Board of Directors has established a maximum decrease in
net interest income and maximum decreases in NPV given these instantaneous
changes in interest rates.
In order to encourage associations to reduce their interest rate risk, the
OTS adopted a rule in 1993 incorporating an interest rate risk ("IRR") component
into the risk-based capital rules. The rule is, however, not yet effective. The
IRR component is a dollar amount that will be deducted from total capital for
the purpose of calculating an institution's risk-based capital requirement and
is measured in terms of the sensitivity of its NPV to changes in interest rates.
NPV is the difference between incoming and outgoing discounted cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's IRR is
measured as the change to its NPV as a result of a hypothetical 200 basis point
change in market interest rates. A resulting change in NPV of more than 2% of
the estimated market value of its assets will require the institution to
maintain additional capital. The rules provide that the OTS will calculate the
IRR component quarterly for each institution; however, because the Bank's total
assets were less than $300 million and its tangible capital was in excess of
12%, the Bank was exempt from the component at December 31, 1996.
The following table sets forth the interest rate risk measures for the Bank
at December 31, 1996 (the most recent date for which such information is
available to the Bank from the OTS) given a hypothetical 200 basis point ("bp")
rate change in market interest rates. See "Regulatory Capital Requirements."
As of December 31, 1996
-----------------------
RISK MEASURES:
200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as %
of Present Value of Assets......... 19.05%
Exposure Measure: Post-Shock
NPV Ratio.......................... 16.73%
Sensitivity Measure: Change in NPV
Ratio................................ (231)bp
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-offs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in differing
degrees to changes in market interest rates. The interest rates on certain types
-16-
<PAGE>
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate loans, which
represent the Bank's primary loan product, have features which restrict changes
in interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of adjustable rate loans in the Bank's portfolios could
decrease in future periods if market interest rates remain at or decrease below
current levels due to refinance activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the tables. Finally, the ability of many
borrowers to service their adjustable rate debt may decrease in the event of an
interest rate increase.
The OTS may increase the minimum capital requirements for savings
associations with higher credit risks.
Federal banking regulators are required to take certain prompt corrective
actions against undercapitalized institutions, the severity of which depends
upon the institution's degree of capitalization. An institution shall be deemed
to be (i) "well capitalized" if it has total risk-based capital of 10.0% or
more, has a Tier I risk-based capital ratio (core or leverage capital to
risk-weighted assets) of 6.0% or more, has a leverage capital of 5.0% or more
and is not subject to any order or final capital directive to meet and maintain
a specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I
risked-based ratio of 4.0% or more and a leverage capital ratio of 4.0% or more
(3.0% under certain circumstances) and does not meet the definition of "well
capitalized;" (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less
than 4.0% or a leverage capital ratio that is less than 4.0% (3.0% in certain
circumstances); (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, or a Tier I risk-based capital
ratio that is less than 3.0%, or a leverage capital ratio that is less than
3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity
to total assets that is equal to or less than 2.0%. In addition, under certain
circumstances, a federal banking agency may reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account established pursuant to
the Bank's Plan of Conversion.
Qualified Thrift Lender Test. The Home Owners' Loan Act, as amended
("HOLA"), requires savings institutions to meet a qualified thrift lender
("QTL") test. If the Bank maintains an appropriate level of qualified thrift
investments (primarily residential mortgages and related investments, including
certain mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL,
it will continue to enjoy full borrowing privileges from the FHLB of Pittsburgh.
The required percentage of QTIs is 65% of portfolio assets (defined as all
assets minus intangible assets, property used by the institution in conducting
its business and liquid assets equal to 20% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. A savings association must have the appropriate amount of QTIs
on a monthly basis in nine out of every 12 months. As of December 31, 1996, the
Bank was in compliance with its QTL requirement with 91.7% of its assets
invested in QTIs.
-17-
<PAGE>
A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 5%. During December 1996, the Bank's liquidity ratio averaged
20.1%.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB of
Pittsburgh. At December 31, 1996, the Bank had $2.0 million in outstanding
advances from the FHLB of Pittsburgh. See "Business of the Bank -- Source of
Funds -- Borrowings."
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all FHLB sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings at December 31, 1996.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS and the SEC. As such, the Company is required
to register and file reports with the OTS and the SEC and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries, should
such subsidiaries be formed, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association.
-18-
<PAGE>
QTL Test. As a unitary savings and loan holding company, the Company
generally will not be subject to activity restrictions, provided the Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to restrictions applicable to bank holding companies unless
such other associations each also qualify as a QTL and were acquired in a
supervisory acquisition. See "-- Bank Regulation -- Qualified Thrift Lender
Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisitions of
control by such person.
Subject to appropriate regulatory approvals, a bank holding company can
acquire control of a savings association, and if it controls a savings
association, merge or consolidate the assets and liabilities of the savings
association with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. Generally, federal savings
associations can acquire or be acquired by any insured depository institution.
Subsidiary Activities
Beckley Federal is permitted to invest up to 2% of its assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under these limitations,
as of December 31, 1996, Beckley Federal was authorized to invest up to
approximately $900,000 in the stock of, or loans to, service corporations (based
upon the 2% limitation). As of December 31, 1996, the net book value of the
Bank's investment in stock, unsecured loans, and conforming loans in its service
corporation was approximately $6,000.
The Bank has one subsidiary, Two Hundred Corporation, which was
incorporated in the State of West Virginia in 1978 for the purpose of providing
data processing services to the Bank through the purchase of an equity interest
in an otherwise unaffiliated data processor. The unaffiliated data processor
experienced serious financial difficulties that resulted in significant losses.
During 1989 and 1990, Two Hundred Corporation sold its investment and recorded a
net loss of $60,000. Two Hundred Corporation has been inactive since 1990.
-19-
<PAGE>
Item 2. Description of Property.
- --------------------------------
(a) The Bank conducts its business through a main office, located at 200
Main Street, Beckley, West Virginia, and one branch office, located at 1723
Harper Road, Beckley, West Virginia. As discussed in the 1995 Form 10-KSB, the
Bank is planning on constructing a new office building on a piece of property
currently owned which is adjacent to its branch facility. Due to unexpected
delays in the architectural process and due to the winter weather, construction
has not yet begun. Prior to the end of the second quarter of 1997, the Board
will review the plans and the anticipated costs associated with the proposed
building before giving final approval to commence construction.
(b) Investment Policies. See "Item 1. Business" for a general description
of the Company's investment policies and any regulatory or Board of Directors'
percentage of assets limitations regarding certain investments. All of the
Company's investment policies are reviewed and approved by the Board of
Directors of the Company or the Bank, and such policies, subject to regulatory
restrictions (if any), can be changed without a vote of stockholders. The
Company's investments are primarily acquired to produce income, and to a lesser
extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See
"Item 1. Business -- Lending Activities," "Item 1. Business -- Regulation" and
"Item 2. Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Business --
Lending Activities" and "Item 1. Business -- Regulation."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business -- Lending Activities,"
"Item 1. Business -- Regulation" and "Item 1. Business -- Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- --------------------------
At December 31, 1996, the Company and the Bank were not engaged in any
material legal proceedings or aware of any such pending legal proceedings, other
than routine litigation incidental to their business (including actions for
negligence), to which the Company or the Bank is a party or to which any of
their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------------
The information contained under the sections captioned "Stock Market
Information" in the Corporation's Annual Report to Stockholders for the Fiscal
Year Ended December 31, 1996 (the "Annual Report"), is incorporated herein by
reference. The Annual Report is included as Exhibit 13 to this Form 10-KSB.
-20-
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The required information is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and is incorporated herein by reference.
Item 7. Financial Statements
- -----------------------------
The Corporation's consolidated financial statements required herein are
contained in the Annual Report and incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(b) of the Exchange Act
- --------------------------------------------------------------------------------
The following table sets forth the directors and executive officers, their
name, age, the year they first became a director of the Company or the Bank, and
the expiration date of their current term as a director. Each director of the
Company is also a member of the Board of Directors of the Bank.
Year First Current
Elected or Term to
Name Age(1) Appointed(2) Expire
---- ------ ------------ ------
Robert N. File 46 1985 1998
Ned H. Ragland, Jr. 55 1984 1998
Tracy L. Riffe 72 1963 1999
James H. Perry, Jr. 65 1979 1999
Duane K. Sellards 55 1975 1997
T. Arnold Graybeal 62 1976 1997
Brian K. Pate 35 N/A N/A
- ---------------------------
(1) At December 31, 1996.
(2) Refers to the year the individual first became a director of the Bank. All
directors of the Bank during March 1994 became directors of the Company
when it was incorporated in March 1994.
-21-
<PAGE>
The principal occupation of each director and executive officer of the
Company is set forth below. All directors and executive officers have held their
present positions for five years unless otherwise stated. All of the directors
and executive officers reside in the State of West Virginia.
Tracy L. Riffe serves as the Chairman of the Board of Directors of the
Company and the Bank and was the President of the Bank until his retirement in
1989. Mr. Riffe is the President and is a director and majority stockholder of
Home Land Company, a real estate agency located in Beckley, West Virginia with
which he has been associated since 1961.
James H. Perry, Jr. has been associated with Coldwell Banker as a realtor
since November 1994. Between 1987 and November 1994, Mr. Perry sold automotive
diagnostic products with Auto Test Products. In the past, Mr. Perry has served
as the President of the local Rotary Club and Raleigh County Chamber of
Commerce. He is also a past local Chairman of the United Fund.
Duane K. Sellards is the President and Chief Executive Officer of the
Company and has served as President of the Bank since 1989. Prior to that time,
he was the Secretary-Treasurer and Chief Financial and Operations Officer of the
Bank. Mr. Sellards is a director of the Beckley-Raleigh County Chamber of
Commerce and a director of the Pinecrest Development Corporation. Mr. Sellards
is also a member of the Economic Restructuring Committee of Beckley Main Street,
and is an associate member of the Estate Planning Council of Southern West
Virginia.
T. Arnold Graybeal has served, since November 1996, as a Vice President,
Treasurer, and part owner of Boyce, Graybeal & Sayre, Inc., a consulting
company. Between April 1995 and November 1996, Mr. Graybeal served as the Vice
President of Finance with Bulk Materials Coal Handling, Inc. From April 1994 to
April 1995, he served as Vice President of Finance for Fairchild International.
Between August 1992 and April 1994, Mr. Graybeal was the Secretary and Treasurer
of Oneida Coal Company, Inc. Between 1991 and 1992, Mr. Graybeal was a business
consultant.
Robert N. File is a partner with the law firm of File, Payne, Scherer &
File. Mr. File is a member of the Estate Planning Council of Southern West
Virginia and is on the West Virginia University Foundation Planned Giving
Advisory Committee. Mr. File is also a director of the Beckley Water Company.
Ned H. Ragland, Jr. became the proprietor of the Law Office of Ned H.
Ragland, Jr. during March 1996. Prior to that time, he was a partner with the
law firm of Ragland & Larrick. Mr. Ragland has served as the President of the
Raleigh County Board of Education and is a former member of the Rotary Club.
Brian K. Pate is the Vice President and Chief Financial Officer of the
Company and the Bank and has served with the Bank since 1992. Between 1991 and
1992, Mr. Pate was an accountant with R.L. Persinger & Company, an accounting
firm in Beckley, West Virginia. Prior to that time, Mr. Pate was an accountant
with ConAgra International Fertilizer Co.
-22-
<PAGE>
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Company's definitive
proxy statement for the Company's 1996 Annual Meeting of Stockholders (the
"Proxy Statement") is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Certain
Beneficial Owners Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of
Directors" in the Proxy Statement.
(c) Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
Company.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors -- Certain
Transactions With the Company" in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
a. Exhibits
3.1 Certificate of Incorporation of Beckley Bancorp, Inc.*
3.2 Bylaws of Beckley Bancorp, Inc.**
10.1 Employment Agreement with Duane K. Sellards
10.2 Beckley Federal Savings Bank Management Stock Bonus Plan and
Trust Agreement
10.3 Beckley Bancorp, Inc. 1994 Stock Option Plan
10.4 Beckley Bancorp, Inc. 1996 Directors Stock Option Plan
11 Statement Regarding Computation of Earnings Per Share
-23-
<PAGE>
13 Portions of the Annual Report to Stockholders for Fiscal Year
Ended December 31, 1996
21 Subsidiaries of the Registrant**
23 Consent of Mason & Bashaw, CPA's, A.C.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
year covered by this report.
- ---------------------------
* Incorporated by reference to the registration statement on Form S-1
(33-77158) declared effective by the SEC on May 16, 1994.
** Incorporated by reference to the Form 10-KSB filed with the SEC for the
fiscal year ended December 31, 1994.
-24-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BECKLEY BANCORP, INC.
By: /s/Duane K. Sellards
Duane K. Sellards, President and
Chief Executive Officer
(Duly Authorized Representative)
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/Duane K. Sellards By: /s/Tracy L. Riffe
---------------------------------------------- -----------------
Duane K. Sellards Tracy L. Riffe
President, Chief Executive Chairman of the Board
Officer and Director
(Principal Executive Officer)
Date: March 27, 1997 Date: March 27, 1997
By: /s/Ned H. Ragland, Jr. By: /s/Brian K. Pate
Ned H. Ragland, Jr. Brian K. Pate
Secretary-Treasurer and Director Vice President and Regulatory Compliance Officer
(Principal Financial and Accounting Officer)
Date: March 27, 1997 Date: March 27, 1997
By: /s/Robert N. File By: /s/T. Arnold Graybeal
Robert N. File T. Arnold Graybeal
Director Director
Date: March 27, 1997 Date: March 27, 1997
By: /s/James H. Perry, Jr.
James H. Perry, Jr.
Director
Date: March 27, 1997
</TABLE>
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 1st day of January, 1994 ("Effective
Date"), by and between Beckley Federal Savings Bank (the "Bank") and Duane K.
Sellards (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank
as President/CEO and is experienced in all phases of the business
of the Bank; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
President/CEO of the Bank. The Employee shall render such administrative and
management services to the Bank and Beckley Bancorp, Inc. ("Parent") as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of the Bank and
Parent. The Employee's other duties shall be such as the Board of Directors for
the Bank (the "Board of Directors") may from time to time reasonably direct,
including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the term
of this Agreement a salary at the rate of $116,000.00 per annum, payable in cash
not less frequently than monthly; provided, that the rate of such salary shall
be reviewed by the Board of Directors not less often than annually, and Employee
shall be entitled to receive annually an increase at such percentage or in such
an amount as the Board of Directors in its sole discretion may decide at such
time.
3. Discretionary Bonus. The Employee shall be entitled to participate in
an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
<PAGE>
4. (a) Participation in Retirement and Medical Plans. The Employee shall
be entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
Additionally, Employee's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Bank or Parent with the cost
of such premiums paid by the employee.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank or
Parent, club memberships, a reasonable expense account, an automobile allowance
of $none per year, and any other benefits which are commensurate with the
responsibilities and functions to be performed by the Employee under this
Agreement. The Bank shall reimburse Employee for all reasonable out-of-pocket
expenses which Employee shall incur in connection with his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall be
for the period commencing on the Effective Date and ending Thirty-Six months
thereafter [Not more than thirty-six (36) months]. Additionally, on each annual
anniversary date from the Effective Date, the term of employment under this
Agreement shall be extended for an additional one year period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Employee has met the requirements and
standards of the Board, and that the term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank
or Parent.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank or Parent, or, solely as a
passive or minority investor, in any business.
7. Standards. The Employee shall perform his duties
under this Agreement in accordance with such reasonable standards
expected of employees with comparable positions in comparable
organizations and as may be established from time to time by the
Board of Directors.
2
<PAGE>
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in accordance
with the policies as are periodically established by the Board of Directors for
senior management employees of the Bank [or stated minimum vacation benefit].
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank, up to a maximum
of two months.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in which
event the Employee's estate shall be entitled to receive the compensation due
the Employee through the last day of the calendar month in which Employee's
death shall have occurred and one additional month.
(b) The Board of Directors may terminate the Employee's employment at any
time, but any termination by the Board of Directors other than termination for
Just Cause, shall not prejudice the Employee's right to compensation or other
benefits under the Agreement. The Employee shall have no right to receive
3
<PAGE>
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of Employee obtaining all health, life, disability, and other benefits
which the Employee would be eligible to participate in through such date based
upon the benefit levels substantially equal to those being provided Employee at
the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all
obligations under this Agreement shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the
Director of the OTS, or his or her designee, at the time that the Director of
the OTS, or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section
4
<PAGE>
12(b), in which case the Employee shall be entitled to receive only the
compensation, vested rights, and all employee benefits up to the date of such
termination.
(h) Notwithstanding anything herein to the contrary, any payments made to
the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank shall, (i) pay the Employee
all or part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate any of its obligations which were suspended.
11. Disability. If the Employee shall become disabled or incapacitated to
the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits which may be payable to Employee under the
provisions of disability insurance coverage in effect for Bank employees [or
alternative provision, i.e., 100% pay for 12 months and 65% for remainder of
term of agreement]. Upon returning to active full-time employment, the
Employee's full compensation as set forth in this Agreement shall be reinstated
as of the date of commencement of such activities. In the event that the
Employee returns to active employment on other than a full-time basis, then his
compensation (as set forth in Paragraph 2 of this Agreement) shall be reduced in
proportion to the time spent in said employment, or as shall otherwise be agreed
to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of
the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
change in control of the Bank or Parent, Employee shall be paid an amount equal
to the product of 2.99 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
discounted to the present value of such payment using as the discount rate the
"prime rate" as published in the Wall Street Journal Eastern Edition as of the
date of such payment, or in periodic payments
5
<PAGE>
over the next 36 months or the remaining term of this Agreement whichever is
less, as if Employee's employment had not been terminated, and such payments
shall be in lieu of any other future payments which the Employee would be
otherwise entitled to receive under Section 9 of this Agreement. The term
"control" shall refer to the ownership, holding or power to vote more than 25%
of the Parent's or Bank's voting stock, the control of the election of a
majority of the Parent's or Bank's directors, or the exercise of a controlling
influence over the management or policies of the Parent or Bank by any person or
by persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the contrary,
Employee may voluntary terminate his employment under this Agreement within
twelve (12) months following a change in control of the Bank or Parent, and
Employee shall thereupon be entitled to receive the payment described in Section
12(a) of this Agreement, upon the occurrence, or within ninety (90) days
thereafter, of any of the following events, which have not been consented to in
advance by the Employee in writing: (i) if Employee would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Employee's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Bank or Parent,
Employee would be required to report to a person or persons other than the Board
of Directors; (iii) if the Bank or Parent should fail to maintain existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans; (iv) if Employee would be assigned duties and responsibilities
other than those normally associated with his position as referenced at Section
1, herein; (v) if Employee would not be elected or reelected to the Board of
Directors of the Bank [if applicable]; or (vi) if Employee's responsibilities or
authority have in any way been materially diminished or reduced.
(c) In the event any dispute shall arise between the Employee and the Bank
as to the terms or interpretation of this Agreement, including this Section 12,
whether instituted by formal legal proceedings or otherwise, including any
action taken by Employee to enforce the terms of this Section 12 or in defending
against any action taken by the Bank or Parent, the Bank or Parent shall
reimburse Employee for all costs and expenses, including reasonable attorneys'
fees, arising from such dispute, proceedings or actions, notwithstanding the
ultimate outcome thereof. Such reimbursement shall be paid within ten (10) days
of Employee furnishing to the Bank or Parent evidence, which may be in the form,
among other things, of a canceled check or receipt, of any costs or expenses
incurred by Employee. Any such request for reimbursement by
6
<PAGE>
Employee shall be made no more frequently than at sixty (60) day intervals.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank or Parent which shall acquire, directly
or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this
Agreement shall be binding upon the parties hereto unless made in
writing and signed by both parties, except as herein otherwise
specifically provided.
15. Applicable Law. This agreement shall be governed by
all respects whether as to validity, construction, capacity,
performance or otherwise, by the laws of the State of West
Virginia, except to the extent that Federal law shall be deemed to
apply.
16. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceablitiy of the
other provisions hereof.
17. Entire Agreement. This Agreement together with any
understanding or modifications thereof as agreed to in writing by
the parties, shall constitute the entire agreement between the
parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
BECKLEY FEDERAL SAVINGS BANK
ATTEST: By:/s/Tracy L. Riffe
-----------------------------------
Tracy L. Riffe
/s/Ned H. Ragland, Jr. Chairman of the Board
- ----------------------------------
Ned H. Ragland, Jr.
Secretary
WITNESS:
/s/Nancy J. Jones /s/Duane K. Sellards
- ---------------------------------- -----------------------------------
Employee
8
EXHIBIT 10.2
<PAGE>
Beckley Federal Savings Bank
Management Stock Bonus Plan
and Trust Agreement
Article I
---------
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Beckley Federal Savings Bank ("Savings Bank") hereby establishes the
Management Stock Bonus Plan (the "Plan") and Trust (the "Trust") upon the terms
and conditions hereinafter stated in this Management Stock Bonus Plan and Trust
Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
----------
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such key employees of the Savings Bank and
its subsidiaries with an equity interest in the parent corporation of the
Savings Bank ("Parent"), as compensation for their future professional
contributions and service to the Savings Bank and its subsidiaries.
Article III
-----------
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by the Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, Recipient's estate.
3.02 "Board" means the Board of Directors of the Savings Bank, or any
successor corporation or Parent thereto.
3.03 "Committee" means the Management Stock Bonus Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.04 "Common Stock" means shares of the common stock, $.10 par value per
share, of the Savings Bank or any successor corporation or Parent thereto.
B-1
<PAGE>
3.05 "Employee" means any person who is employed by the Savings Bank or a
Subsidiary.
3.06 "Effective Date" shall mean the date of stockholder ratification of
the Plan by the Parent's stockholders.
3.07 "Parent" shall mean the parent corporation of the Savings Bank.
3.08 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Recipient pursuant to the Plan.
3.09 "Plan Share Award" means a right granted to an Employee under this
Plan to receive Plan Shares.
3.10 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.11 "Recipient" means an Employee who receives a Plan Share Award under
the Plan.
3.12 "Savings Bank" means Beckley Federal Savings Bank, and any successor
corporation thereto.
3.13 "Subsidiary" means those subsidiaries of the Savings Bank which, with
the consent of the Board, agree to participate in this Plan.
3.14 "Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
----------
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall consist of not less than three non-employee
members of the Board, which shall have all of the powers allocated to it in this
and other sections of the Plan. All persons designated as members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year. The Committee shall recommend to the Board one
or more persons or entity to act as Trustee(s) in accordance with the provision
of this Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee or
Trustees shall be appointed or approved by, and will serve at the pleasure of
the Board. The Board may in its
B-2
<PAGE>
discretion from time to time remove members from, or add members to, the
Committee, and may remove, replace or add Trustees. The Board shall have all of
the powers allocated to it in this and other sections of the Plan, may take any
action under or with respect to the Plan which the Committee is authorized to
take, and may reverse or override any action taken or decision made by the
Committee under or with respect to the Plan, provided, however, that the Board
may not revoke any Plan Share Award already made except as provided in Section
7.01(b) herein. Members of the Board who are eligible for or who have been
granted Plan Share Awards may not vote on any matters affecting the
administration of the Plan or the grant of Plan Shares or Plan Share Awards
(although such members may be counted in determining the existence of a quorum
at any meeting of the Board during which actions taken). Further, with respect
to all actions taken by the Board in regard to the Plan, such action shall be
taken by a majority of the Board where such a majority of the directors acting
in the matter are "disinterested persons" within the meaning of Rule 16b-3
promulgated under the 1934 Act.
4.03 Limitation on Liability. No member of the Board or the Committee or
the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Share Awards granted under it. If a member of
the Board or Committee or any Trustee is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by any reason of
anything done or not done by him in such capacity under or with respect to the
Plan, the Parent shall indemnify such member against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Parent and its Subsidiaries and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Article V
---------
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of the
Savings Bank shall determine the amounts (or the method of computing the
amounts) to be contributed by the Savings Bank to the Trust established under
this Plan. Such amounts shall be paid to the Trustee at the time of
contribution. No contributions to the Trust by Employees shall be permitted.
5.02 Initial Investment. Any funds held by the Trust prior to investment
in the Common Stock shall be invested by the Trustee in such interest-bearing
account or accounts at the Savings Bank as the Trustee shall determine to be
appropriate.
5.03 Investment of Trust Assets. Following ratification of the Plan by
stockholders of the Parent and receipt of any other necessary regulatory
approvals, the Trust shall purchase Common Stock of the Parent in an amount
equal to up to 100% of the Trust's assets, after providing for any required
withholding as needed for tax purposes, provided, however, that the Trust shall
not purchase more than 4% of the aggregate shares of Common Stock issued by the
Parent in the mutual-to-stock conversion of the Savings Bank ("Conversion")
(i.e., 23,805 shares of Common Stock). The Trustee shall purchase shares of
Common Stock in the open market or, in the alternative, shall purchase
authorized but unissued shares of the Common Stock from the Parent sufficient to
fund the Plan Share Reserve.
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5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
decision of the Committee to return Plan Shares to the Parent, the Plan Share
Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which may not be earned
because of forfeiture by the Recipient pursuant to Section 7.01 shall be added
to the Plan Share Reserve.
Article VI
----------
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees of the Savings Bank and its Subsidiaries are
eligible to receive Plan Share Awards within the sole discretion of the
Committee. Notwithstanding anything herein to the contrary, no individual shall
receive aggregate Plan Share Awards of more than twenty-five percent (25%) of
the total Plan Share Awards authorized under the Plan.
6.02 Allocations. The Committee will determine which of the Employees
referenced in Section 6.01 above will be granted Plan Share Awards and the
number of Shares covered by each Award, provided, however, that in no event
shall any Awards be made which will violate the Charter or Bylaws of the Savings
Bank or its Parent or Subsidiaries or any applicable federal or state law or
regulation. In the event Shares are forfeited for any reason or additional
Shares are purchased by the Trustee, the Committee may, from time to time,
determine which of the Employees referenced in Section 6.01 above will be
granted additional Plan Share Awards to be awarded from forfeited Shares. In
selecting those Employees to whom Plan Share Awards will be granted and the
number of shares covered by such Awards, the Committee shall consider the
position duties and responsibilities of the eligible Employees, the value of
their services to the Savings Bank and its Subsidiaries, and any other factors
the Committee may deem relevant. All actions by the Committee shall be deemed
final, except to the extent that such actions are revoked by the Board.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the award may be earned. The date on which the Committee so
notifies the Recipient shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, no Employee shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the Employees as a group have such a
right. The Committee may, with the approval of the Board (or, if so directed by
the Board) return all Common Stock in the Plan Share Reserve to the Savings Bank
at any time, and cease issuing Plan Share Awards.
6.05 Awards to Directors. Notwithstanding anything herein to the contrary,
upon the Effective Date, a Plan Share Award consisting of 1,190 Plan Shares
shall be awarded to each director of the Savings Bank. Such Plan Share Award
shall be earned and non-forfeitable at the rate of one-fifth as of the Effective
Date and an additional one-fifth following each of the next four successive
years. Such Plan Share Award shall continue to vest without regard to the
continued service as a Director or Director Emeritus, and such Plan Share Award
shall be immediately non-forfeitable in the event of the
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<PAGE>
death or disability of such director, or a change in control of the Savings Bank
or Parent as provided in Section 7.01(d) herein. Subsequent to the Effective
Date, Plan Share Awards may be awarded to newly elected or appointed directors
of the Savings Bank by the Committee, provided that total Plan Share Awards to
non-employee directors of the Savings Bank shall not exceed 5,950 Plan Shares in
the aggregate under the Plan. Notwithstanding anything herein to the contrary,
in no event shall the Plan Share Awards awarded to non-employee directors of the
Savings Bank exceed 30% of total Plan Shares in the aggregate under the Plan or
5% to any individual non-employee director.
Article VII
-----------
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically state to the
contrary at the time a Plan Share Award is granted, Plan Shares subject to an
Award shall be earned and non-forfeitable by a Recipient at the rate of
one-fifth of such Award following one year after granting of such Award, and an
additional one-fifth following each of the next four successive years; provided
that such Recipient remains an Employee during such period.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether or not yet earned, in the case of a Recipient who is
discharged from the employ or service of the Parent, Savings Bank or a
Subsidiary for Cause (as hereinafter defined), or who is discovered after
termination of employment or service to have engaged in conduct that would have
justified termination for cause. "Cause" is defined as personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profits, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations and similar offense), or
a violation of a final cease-and-desist order or any other action which results
in a substantial financial loss to the Parent, Savings Bank or its Subsidiaries.
A determination of "Cause" shall be made by the Board within its sole
discretion.
(c) Exception for Terminations Due to Death or Disability. Notwithstanding
the general rule contained in Section 7.01(a) above, all Plan Shares subject to
a Plan Share Award held by a Recipient whose employment with the Parent, Savings
Bank or a Subsidiary terminates due to death or disability (as determined by the
Committee), shall be deemed earned as of the Recipient's last day of employment
with the Parent, Savings Bank or Subsidiary and shall be distributed as soon a
practicable thereafter.
(d) Exception for Termination after a Change in Control. Notwithstanding
the general rule contained in Section 7.01 above, all Plan Shares subject to a
Plan Share Award held by a recipient shall be deemed to be immediately 100%
earned and non-forfeitable in the event of a "change in control" of the Parent
or Savings Bank and shall be distributed as soon as practicable thereafter. For
purposes of this Plan, "change in control" shall mean: (i) the execution of an
agreement for the sale of all, or a material portion, of the assets of the
Parent or Savings Bank; (ii) the execution of an agreement for a merger or
recapitalization of the Parent or Savings Bank or any merger or recapitalization
whereby the Parent or Savings Bank is not the surviving entity; (iii) a change
of control of the Parent or Savings
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Bank, as otherwise defined or determined by the Office of Thrift Supervision or
regulations promulgated by it; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the 1934 Act and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Parent or Savings Bank by any person, trust, entity or group.
This limitation shall not apply to the purchase of shares of up to 25% of any
class of securities of the Parent or Savings Bank by a tax-qualified employee
stock benefit plan which is exempt from the approval requirements, set forth
under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or as may hereafter be
amended. The term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding.
7.02 Payment of Dividends. A holder of a Plan Share Award, whether or not
non-forfeitable, shall also be entitled to receive an amount equal to any cash
dividends declared and paid with respect to shares of Common Stock represented
by such Plan Share Award between the date the relevant Plan Share Award was
initially granted to such Recipient and the date the Plan Shares are
distributed.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the Recipient
or his Beneficiary, as the case may be, as soon as practicable after they have
been earned. No fractional shares shall be distributed. Notwithstanding anything
herein to the contrary, at the discretion of the Committee, Plan Shares may be
distributed prior to such shares being 100% earned, provided that such Plan
Shares shall contain a restrictive legend detailing the applicable limitations
of such shares with respect to transfer and forfeiture.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earning thereon) shall be made in cash.
Notwithstanding anything within the Plan to the contrary, upon a Change in
Control whereby substantially all of the Common Stock of the Company shall be
acquired for cash, all Plan Shares associated with Plan Share Awards, together
with any shares representing stock dividends associated with Plan Share Awards,
shall be, at the sole discretion of the Committee, distributed as of the
effective date of such Change in Control, or as soon as administratively
feasible thereafter, in the form of cash equal to the consideration received in
exchange for such Common Stock represented by such Plan Shares.
(c) Withholding. The Trustee may withhold from any payment or distribution
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to have the Trustee withhold
from delivery a number of Plan Shares having a fair market value, at the time
withheld, sufficient to satisfy such withholding and employment taxes, or to pay
to the Trustee the amount required to be withheld as a condition of delivering
the Plan Shares. The Trustee shall pay over to the Parent, Savings Bank or
Subsidiary which employs or employed such recipient any such amount withheld
from or paid by the Recipient or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection (a)
above, no Plan Shares may be distributed prior to the date which is five (5)
years from the effective date of the
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<PAGE>
Savings Bank's Conversion to the extent the Recipient or Beneficiary, as the
case may be, would after receipt of such Shares own in excess of ten percent
(10%) of the issued and outstanding shares of Common Stock held by parties other
than Parent, unless such action is approved in advance by a majority vote of
disinterested directors of the Board. Any Plan Shares remaining undistributed
solely by reason of the operation of this Subsection (d) shall be distributed to
the Recipient or his Beneficiary on the date which is five years from the
effective date of the Savings Bank's Conversion.
(e) Regulatory Exceptions. No Plan Shares shall be distributed, however,
unless and until all of the requirements of all applicable law and regulation
shall have been fully complied with, including the receipt of approval of the
Plan by the stockholders of the Parent by such vote, if any, as may be required
by applicable law and regulations as determined by the Board.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted, the
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed pursuant to Section 7.03, subject to rules and procedures
adopted by the Committee for this purpose. All shares of Common Stock held by
the Trust as to which Recipients are not entitled to direct, or have not
directed, the voting of, shall be voted by the Trustee as directed by the
Committee.
Article VIII
------------
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that the
Trustee shall have complete authority and discretion with respect to the
management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, and except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet the obligations of the Trust. In performing their duties, the Trustees
shall have the power to do all things and execute such instruments as may be
deemed necessary or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in the
Common Stock without regard to any law now or hereafter in force limiting
investments for Trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustees are authorized to purchase Common Stock from
Parent or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or Treasury shares.
(b) To invest in any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Savings Bank), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.
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<PAGE>
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the opinion
of the Trustee reasonable for the proper operation of the Plan and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights, duties
and obligations hereunder, and such other legal services or representation
as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account or
held in common with other assets.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust assets
shall be allocated in accordance with a reasonable procedure adopted by the
Committee, to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. In particular, any earnings on cash dividends
received with respect to shares of Common Stock shall be allocated to accounts
for Recipients, except to the extent that such cash dividends are distributed to
Recipients, if such shares are the subject of outstanding Plan Share Awards, or,
otherwise to the Plan Share Reserve.
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be paid by the Savings Bank.
8.06 Indemnification. The Parent shall indemnify, defend and hold the
Trustee harmless against all claims, expenses and liabilities arising out of or
related to the exercise of the Trustee's powers and the discharge of their
duties hereunder, unless the same shall be due to their gross negligence or
willful misconduct.
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Article IX
----------
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for issuance pursuant to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the effective date of the Plan resulting from any
split, subdivision or consolidation of shares or other capital adjustment, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Parent.
9.02 Amendment and Termination of the Plan. The Board may, by resolution,
at any time, amend or terminate the Plan. The power to amend or terminate the
Plan shall include the power to direct the Trustee to return to the Parent all
or any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve, as well as shares of Common Stock and other assets
subject to Plan Share Awards but not yet earned by the Employees to whom they
are allocated. However, the termination of the Trust shall not affect a
Recipients right to earn Plan Share Awards and to the distribution of Common
Stock relating thereto, including earnings thereon, in accordance with the terms
of this Plan and the grant by the Committee or the Board.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Parent, Savings Bank, or any Subsidiary be subject to any claim
for benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee to continue in the employ
of the Parent, Savings Bank, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Law. The Plan and Trust shall be governed and construed
under the laws of the State of West Virginia, except to the extent that Federal
Law shall be deemed applicable.
9.07 Effective Date. The Plan shall be as effective as of the date of
ratification of the Plan by stockholders of the Parent.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) termination by the Board, (2) the distribution of all assets of the Trust,
or (3) 21 years from the Effective Date. Termination of the Plan shall not
effect any Plan Share Awards previously granted, and such Awards shall remain
valid and in effect until they have been earned and paid, or by their terms
expire or are forfeited.
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9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as grantor trust of the Savings Bank under the provisions of Section
671 et seq. of the Internal Revenue Code, as the same may be amended from time
to time.
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EXHIBIT 10.3
<PAGE>
BECKLEY BANCORP, INC.
1994 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the Beckley Bancorp,
Inc. ("Corporation") 1994 Stock Option Plan (the "Plan"). The purpose of the
Plan is to attract and retain the best available personnel for positions of
substantial responsibility and to provide additional incentive to officers,
directors and key employees of the Corporation, or any present or future parent
or subsidiary of the Corporation to promote the success of the business. The
Plan is intended to provide for the grant of "Incentive Stock Options," within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and Non-Incentive Stock Options, options that do not so qualify. Each
and every one of the provisions of the Plan relating to Incentive Stock Options
shall be interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions shall apply.
(a) "Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option, or any combination thereof, as provided
in the Plan.
(b) "Bank" shall mean Beckley Federal Savings Bank, or any successor
corporation thereto.
(c) "Board" shall mean the Board of Directors of the Corporation, or
any successor or parent corporation thereto.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Stock Option Committee appointed by
the Board in accordance with paragraph 5(a) of the Plan.
(f) "Common Stock" shall mean common stock, par value $.10 per
share, of the Corporation, or any successor or parent corporation thereto.
(g) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment with the
Corporation or any present or future Parent or Subsidiary of the Corporation.
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Corporation or in
the case of transfers between payroll locations, of the Corporation or between
the Corporation, its Parent, its Subsidiaries or a successor.
(h) "Corporation" shall mean the Beckley Bancorp, Inc., the parent
corporation for the Bank, or any successor or Parent thereof.
(i) "Director" shall mean a member of the Board of the Corporation,
or any successor or parent corporation thereto.
(j) "Effective Date" shall mean the date specified in Section 15
hereof.
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(k) "Employee" shall mean any person employed by the Corporation or
any present or future Parent or Subsidiary of the Corporation.
(l) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify under Section 422 of the Code.
(m) "Non-Incentive Stock Option" or "Non-ISO" shall mean an option
to purchase Shares granted pursuant to Section 9 hereof, which option is not
intended to qualify under Section 422 of the Code.
(n) "Option" shall mean an Incentive or Non-Incentive Stock Option
granted pursuant to this Plan providing the holder of such Option with the right
to purchase Common Stock.
(o) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(p) "Optionee" shall mean any person who receives an Option or Award
pursuant to the Plan.
(q) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Subsections 424(e) and (g) of the
Code.
(r) "Participant" means any director, officer or key employee of the
Corporation or any Parent or Subsidiary of the Corporation or any other person
providing a service to the Corporation who is selected by the Committee to
receive an Award, or who by the express terms of the Plan is granted an Award.
(s) "Plan" shall mean the Beckley Bancorp, Inc. 1994 Stock Option
Plan.
(t) "Share" shall mean one share of the Common Stock.
(u) "Subsidiary" shall mean any present or future corporation which
would be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of
the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 29,512. Such
Shares may either be authorized but unissued shares or treasury shares.
An Award shall not be considered to be made under the Plan with respect to
any Option which terminates prior to its exercise, and new Awards may be granted
under the Plan with respect to the number of Shares as to which such termination
has occurred.
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4. Six Month Holding Period.
A total of six months must elapse between the date of the grant of
an Option and the date of the sale of Common Stock received through the exercise
of an Option.
5. Administration of the Plan.
(a) (i) Composition of the Committee. Except as indicated in
paragraph 5(a)(ii) below, the Plan shall be administered by the Committee
consisting of at least three non-employee Directors of the Corporation appointed
by the Board and serving at the pleasure of the Board. Officers, Directors, key
employees and other persons who are designated by the Committee shall be
eligible to receive Awards under the Plan, and all persons designated as members
of the Committee shall be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934.
(ii) For the purpose of granting Awards to directors, the
selection of any Director to whom Awards may be granted, as well as the number
of Shares subject to Awards, must be determined by a "disinterested committee",
as defined in Rule 16b-3 under the Securities Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The Chairman of the Corporation and such other officers as shall be
designated by the Committee are hereby authorized to execute instruments
evidencing Awards on behalf of the Corporation and to cause them to be delivered
to the Participants.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
6. Eligibility.
(i) Awards may be granted to officers, Directors, key
employees and other persons. The Committee shall from time to time determine the
officers, Directors, key employees and other persons who shall be granted Awards
under the Plan, the number to be granted to each such officer, Director, key
employee and other persons under the Plan, and whether Awards granted to each
such Participant under the Plan shall be Incentive and/or Non-Incentive Stock
Options. In selecting Participants and in determining the number of Shares of
Common Stock to be granted to each such Participant pursuant to each Award
granted under the Plan, the Committee may consider the nature of the services
rendered by each such Participant, each such Participant's current and potential
contribution to the Corporation and such other factors as the Committee may, in
its sole discretion, deem relevant. Officers, Directors, key employees or other
persons who have been granted an Award may, if otherwise
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<PAGE>
eligible, be granted additional Awards. Notwithstanding anything herein to the
contrary, no individual shall receive aggregate Awards of more than twenty-five
percent (25%) of the total Awards authorized under the Plan.
(ii) The aggregate fair market value (determined as of the
date the Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by each Employee during any calendar
year (under all Incentive Stock Option plans, as defined in Section 422 of the
Code, of the Corporation or any present or future Parent or Subsidiary of the
Corporation) shall not exceed $100,000. Notwithstanding the prior provisions of
this Section 6, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options, as defined in Section 422 of the Code.
(iii) In no event shall Shares subject to Options granted to
non-employee Directors in the aggregate under this Plan exceed more than 30% of
the total number of Shares authorized for delivery under this Plan pursuant to
Section 3 herein, or in excess of 5% of the total Plan awards authorized to any
individual non-employee director.
7. Term of the Plan. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date, unless sooner terminated pursuant to Section
18 hereof. No Option shall be granted under the Plan after ten (10) years from
the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each and every
Incentive Stock Option granted pursuant to the Plan shall comply with, and be
subject to, the following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive Stock Option
granted under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the Common Stock
at the time such Incentive Stock Option is granted. For such purposes, if the
Common Stock is traded otherwise than on a national securities exchange at the
time of the granting of an Option, then the price per Share of the Optioned
Stock shall be not less than the mean between the bid and asked price on the
date the Incentive Stock Option is granted or, if there is no bid and asked
price on said date, then on the next prior business day on which there was a bid
and asked price. If no such bid and asked price is available, then the price per
Share shall be determined by the Committee. If the Common Stock is listed on a
national securities exchange at the time of the granting of an Incentive Stock
Option, then the price per Share shall be not less than the average of the
highest and lowest selling price on such exchange on the date such Incentive
Stock Option is granted or, if there were no sales on said date, then the price
shall be not less than the mean between the bid and asked price on such date.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option price
shall not be less than one hundred and ten percent (110%) of the fair market
value of the Common Stock at the time the Incentive Stock Option is granted.
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(b) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Incentive Stock Option granted under the Plan shall be
made at the time of exercise of each such Incentive Stock Option and shall be
paid in cash (in United States Dollars), Common Stock or a combination of cash
and Common Stock. Common Stock utilized in full or partial payment of the
exercise price shall be valued at its fair market value at the date of exercise.
The Corporation shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No Shares of Common Stock shall be issued
until full payment therefor has been received by the Corporation, and no
Optionee shall have any of the rights of a stockholder of the Corporation until
Shares of Common Stock are issued to him.
(c) Term of Incentive Stock Option. The term of each Incentive Stock
Option granted pursuant to the Plan shall be not more than ten (10) years from
the date each such Incentive Stock Option is granted, provided that in the case
of an Employee who owns stock representing more than ten percent (10%) of the
Common Stock outstanding at the time the Incentive Stock Option is granted, the
term of the Incentive Stock Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in Section 10
hereof, no Incentive Stock Option may be exercised unless the Optionee shall
have been in the employ of the Corporation at all times during the period
beginning with the date of grant of any such Incentive Stock Option and ending
on the date three (3) months prior to the date of exercise of any such Incentive
Stock Option. The Committee may impose additional conditions upon the right of
an Optionee to exercise any Incentive Stock Option granted hereunder which are
not inconsistent with the terms of the Plan or the requirements for
qualification as an Incentive Stock Option under Section 422 of the Code.
(e) Cashless Exercise. An Optionee who has held an Incentive Stock
Option for at least six months may engage in the "cashless exercise" of the
Option. In a cashless exercise, an Optionee gives the Corporation written notice
of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Corporation to pay the Option
price and any applicable withholding taxes. If the Optionee does not sell the
Optioned Stock through a registered broker-dealer or equivalent third party, he
can give the Corporation written notice of the exercise of the Option and the
third party purchaser of the Optioned Stock shall pay the Option price plus any
applicable withholding taxes to the Corporation.
(f) Transferability. Any Incentive Stock Option granted pursuant to
the Plan shall be exercised during an Optionee's lifetime only by the Optionee
to whom it was granted and shall not be assignable or transferable otherwise
than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
and every Non-Incentive Stock Option granted pursuant to the Plan shall comply
with and be subject to the following terms and conditions.
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(a) Options Granted to Directors. Subject to the limitations of
Section 6(iii), 2,975* Non-Incentive Stock Options will be granted to each
Director as of the Effective Date at an exercise price equal to the fair market
value of the Common Stock on such date of grant. Options may be granted to newly
appointed or elected non-employee Directors within the sole discretion of the
Committee. The Option will be exercisable immediately upon stockholder
ratification of the Plan and will vest and remain exercisable for up to ten
years from such date of grant. The price per Share at which such Options granted
shall be exercisable shall be equal to the fair market value of the Common Stock
at the time such Options are granted. For such purposes, if the Common Stock is
traded otherwise than on a national securities exchange at the time of the
granting of the Options, then the price per Share of the Optioned Stock shall be
not less than the mean between the bid and asked price on the date the Options
are granted or, if there is no bid and asked price on said date, then on the
next prior business day on which there was a bid and asked price. If no such bid
and asked price is available, then the price per Share shall be determined by
the Committee. If the Common Stock is listed on a national securities exchange
at the time of the granting of an Options, then the price per Share shall be not
less than the average of the highest and lowest selling price on such exchange
on the date such Options are granted or, if there were no sales on said date,
then the price shall be not less than the mean between the bid and asked price
on such date. Such Options shall vest in accordance with the Plan and may be
exercised for a period of ten years following the date of grant without regard
to the continued services of such Directors as a Director or Director Emeritus,
or in the event of such person's death during the term of his directorship, by
the personal representative of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws of descent and
distribution. Notwithstanding anything herein to the contrary, Options granted
pursuant to this Section 9(a) to Directors who are also Employees at the time of
such grant shall be deemed Incentive Stock Options; provided that if such
Options shall not be exercised within 3 months of the date of termination of
employment, except in the case of disability or death, as noted above, such
Options shall thereafter be deemed Non-Incentive Stock Options and shall remain
exercisable for the remaining term of exercisability. Notwithstanding the
provisions of Section 9(a), additional Awards may be made to Directors who are
serving as Employees within the sole discretion of the Committee. Unless
otherwise inapplicable, or inconsistent with the provisions of this paragraph,
the Options to be granted to Directors hereunder shall be subject to all other
provisions of this Plan.
(b) Option Price. The exercise price per Share of Common Stock for
each Non-Incentive Stock Option granted pursuant to the Plan, other than Options
granted pursuant to Section 9(a) herein, shall be at such price as the Committee
may determine in its sole discretion; provided that in no event shall the
exercise price of Non-Incentive Stock Options granted pursuant to the Plan be
less than the market price of the Common Stock as of the date of grant of such
Options.
(c) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Non-Incentive Stock Option granted under the Plan shall
be made at the time of exercise of each such Non-Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. The Corporation shall
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* Non-discretionary formula grant of options to directors equalling 5.0% of
total shares reserved to each director, to a maximum of 30% in the
aggregate to all non-employee directors as a group.
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<PAGE>
accept full or partial payment in Common Stock only to the extent permitted by
applicable law. No Shares of Common Stock shall be issued until full payment
therefor has been received by the Corporation and no Optionee shall have any of
the rights of a stockholder of the Corporation until the Shares of Common Stock
are issued to him.
(d) Term. The term of each Non-Incentive Stock Option granted
pursuant to the Plan shall be not more than ten (10) years from the date each
such Non-Incentive Stock Option is granted.
(e) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
(f) Cashless Exercise. An Optionee who has held a Non-Incentive
Stock Option for at least six months may engage in the "cashless exercise" of
the Option. In a cashless exercise, an Optionee gives the Corporation written
notice of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Corporation to pay the Option
price and any applicable withholding taxes. If the Optionee does not sell the
Optioned Stock through a registered broker-dealer or equivalent third party, he
can give the Corporation written notice of the exercise of the Option and the
third party purchaser of the Optioned Stock shall pay the Option price plus any
applicable withholding taxes to the Corporation.
(g) Transferability. Any Non-Incentive Stock Option granted pursuant
to the Plan shall be exercised during an Optionee's lifetime only by the
Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on Incentive
Stock Options.
(a) Termination of Employment. In the event that any Optionee's
employment with the Corporation shall terminate for any reason, other than
Permanent and Total Disability (as such term is defined in Section 22(e)(3) of
the Code) or death, all of any such Optionee's Incentive Stock Options, and all
of any such Optionee's rights to purchase or receive Shares of Common Stock
pursuant thereto, shall automatically terminate on the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the
expiration of not more than three (3) months after the date of such termination
of employment, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment. In the event that a subsidiary ceases to be a subsidiary of the
Corporation, the employment of all of its employees who are not immediately
thereafter employees of the Corporation shall be deemed to terminate upon the
date such subsidiary so ceases to be a Subsidiary of the Corporation.
(b) Disability. In the event that any Optionee's employment with the
Corporation shall terminate as the result of the Permanent and Total Disability
of such Optionee, such Optionee may exercise any Incentive Stock Options granted
to him pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is one (1) year after the date of such termination of employment, but only
if, and to the extent that, the Optionee was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment.
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(c) Death. In the event of the death of an Optionee, any Incentive
Stock Options granted to such Optionee may be exercised by the person or persons
to whom the Optionee's rights under any such Incentive Stock Options pass by
will or by the laws of descent and distribution (including the Optionee's estate
during the period of administration) at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is two (2) years after the date of death of such Optionee but only if, and
to the extent that, the Optionee was entitled to exercise any such Incentive
Stock Options at the date of death. For purposes of this Section 10(c), any
Incentive Stock Option held by an Optionee shall be considered exercisable at
the date of his death if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at the date of death is the
passage of a specified period of time. At the discretion of the Committee, upon
exercise of such Options the Optionee may receive Shares or cash or combination
thereof. If cash shall be paid in lieu of Shares, such cash shall be equal to
the difference between the fair market value of such Shares and the exercise
price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes of
Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of his
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment.
(e) Termination of Incentive Stock Options. To the extent that any
Incentive Stock Option granted under the Plan to any Optionee whose employment
with the Corporation terminates shall not have been exercised within the
applicable period set forth in this Section 10, any such Incentive Stock Option,
and all rights to purchase or receive Shares of Common Stock pursuant thereto,
as the case may be, shall terminate on the last day of the applicable period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment,
disability of an Optionee or his death shall be such terms and conditions as the
Committee shall, in its sole discretion, determine at the time of termination,
unless specifically provided for by the terms of the Agreement at the time of
grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The Committee, in
its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Incentive Stock Option, the right (the "Repurchase Right"), but not the
obligation, to repurchase all or any amount of the Shares acquired by an
Optionee pursuant to the exercise of any such Options. The intent of the
Repurchase Right is to encourage the continued employment of the Optionee. The
Repurchase Right shall provide for, among other things, a specified duration of
the Repurchase Right, a specified price per Share to be paid upon the exercise
of the Repurchase Right and a restriction on the disposition of the Shares by
the Optionee during the period of the Repurchase Right. The Repurchase Right may
permit the Corporation to transfer or assign such right to another party. The
Corporation may exercise the Repurchase Right only to the extent permitted by
applicable law.
13. Recapitalization, Merger, Consolidation, Change in Control and Similar
Transactions.
(a) Adjustment. Subject to any required action by the stockholders
of the Corporation, within the sole discretion of the Committee, the aggregate
number of Shares of Common Stock for which Options may be granted hereunder, the
number of Shares of Common Stock covered by
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<PAGE>
each outstanding Option, and the exercise price per Share of Common Stock of
each such Option, shall all be proportionately adjusted for any increase or
decrease in the number of issued and outstanding Shares of Common Stock
resulting from a subdivision or consolidation of Shares (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, combination
of shares, or otherwise) or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such Shares of
Common Stock effected without the receipt of consideration by the Corporation
(other than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a change in control of the Corporation,
as determined by the Committee. In the event of such a change in control, the
Optionee shall, at the discretion of the Committee, be entitled to receive cash
in an amount equal to the fair market value of the Common Stock subject to any
Incentive or Non-Incentive Stock Option over the Option Price of such Shares, in
exchange for the surrender of such Options by the Optionee on that date in the
event of a change in control of the Corporation. For purposes of this Section
13, "change in control" shall mean: (i) the execution of an agreement for the
sale of all, or a material portion, of the assets of the Corporation; (ii) the
execution of an agreement for a merger or recapitalization of the Corporation or
any merger or recapitalization whereby the Corporation is not the surviving
entity; (iii) a change of control of the Corporation, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Corporation by any person, trust, entity or group. This
limitation shall not apply to the purchase of shares by underwriters in
connection with a public offering of Corporation stock, or the purchase of
shares of up to 25% of any class of securities of the Corporation by a
tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding.
(c) Extraordinary Corporate Action. Subject to any required action
by the stockholders of the Corporation, in the event of any change in control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, liquidation or other extraordinary corporate
action or event, the Committee, in its sole discretion, shall have the power,
prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common Stock
subject to each Option, the exercise price per Share of Common Stock, and the
consideration to be given or received by the Corporation upon the exercise of
any outstanding Option;
(ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan
as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code.
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<PAGE>
Except as expressly provided in Sections 13(a) and 13(b) hereof, no
Optionee shall have any rights by reason of the occurrence of any of the events
described in this Section 13.
(d) Acceleration. The Committee shall at all times have the power to
accelerate the exercise date of Options previously granted under the Plan;
provided however the exercisability of such Options may be accelerated only in
the event of death, disability or change in control in accordance with the Plan.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Except, however, for purposes of
compliance with Section 16 of the Securities Exchange Act of 1934, the date of
grant of an Option shall be deemed the later of the date of grant or the date of
stockholder approval of the Plan. Notice of the determination of the grant of an
Option shall be given to each individual to whom an Option is so granted within
a reasonable time after the date of such grant in a form determined by the
Committee.
15. Effective Date. The Plan shall become effective upon the date of
ratification of the Plan by the stockholders of the Corporation. The Committee
may authorize the grant of options prior to the Effective Date with such option
grants to be effective upon the date of stockholder ratification of the Plan.
16. Ratification by Stockholders. The Plan shall be ratified by
stockholders of the Corporation within twelve (12) months before or after the
date the Plan is approved by the Board.
17. Modification of Options. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on him by the grant of a new Option at such
time, or shall not materially decrease the Optionee's benefits under the Option
without the consent of the holder of the Option, except as otherwise permitted
under Section 18 hereof. Notwithstanding anything herein to the contrary, the
Committee shall have the authority to cancel outstanding Options with the
consent of the Optionee and to reissue new Options at a lower exercise price,
but in no event less than the then fair market value per share of Common Stock,
in the event that the fair market value per share of Common Stock at any time
prior to the date of exercise of outstanding Options falls below the exercise
price of such Options.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or discontinue
the Plan, except that no action of the Board may increase (other than as
provided in Section 13 hereof) the maximum number of Shares permitted to be
optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Corporation.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Incentive and/or Non-Incentive Stock Option unlawful or
subject the Corporation to any penalty, the Committee may restrict any such
exercise without the
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consent of the Optionee or other holder thereof in order to comply with any such
law, rule or regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
The inability of the Corporation to obtain any necessary authorizations,
approvals or letters of non-objection from any regulatory body or authority
deemed by the Corporation's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder shall relieve the Corporation of any liability in
respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Corporation may require
the person exercising the Option to make such representations and warranties as
may be necessary to assure the availability of an exemption from the
registration requirements of federal or state securities law.
Notwithstanding anything herein to the contrary, upon termination of
employment or service for "cause" as defined at 12 C.F.R. 563.39(b)(1) as
determined by the Board of Directors, all Options held by such Participant shall
cease to be exercisable as of the date of such termination of employment.
20. Reservation of Shares. During the term of the Plan, the Corporation
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Corporation by reason of the Plan
or the grant of any Incentive or Non-Incentive Stock Option under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-Incentive Stock Option hereunder and there shall be no required
funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options under
the Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Corporation
shall have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
23. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of West Virginia, except to the extent
that federal law shall be deemed to apply.
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EXHIBIT 10.4
<PAGE>
BECKLEY BANCORP, INC.
1996 DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the Beckley Bancorp,
Inc. ("Corporation") 1996 Directors Stock Option Plan (the "Plan"). The purpose
of the Plan is to attract and retain qualified personnel to serve as members of
the Board of Directors of the Corporation and the Board of Directors of Beckley
Federal Savings Bank necessary to promote the success of the business
enterprise.
2. Definitions. The following words and phrases when used in this Plan
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.
(a) "Award" means the grant of Stock Options to Directors of the
Corporation and the Savings Bank as specified by the terms of the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation, or
any successor or parent corporation thereto.
(c) "Change in Control" shall mean: (i) the sale of all, or a
material portion, of the assets of the Corporation; (ii) a merger or
recapitalization in the Corporation whereby the Corporation is not the surviving
entity; (iii) a change in control of the Corporation, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Corporation by any person, trust, entity or group. This
limitation shall not apply to the purchase of shares by underwriters in
connection with a public offering of Corporation stock, or the purchase of
shares of up to 25% of any class of securities of the Corporation by a
tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a Change
in Control has occurred shall be conclusive and binding.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
(e) "Committee" shall mean the Stock Option Committee appointed by
the Board in accordance with Section 5(a) of the Plan.
(f) "Common Stock" shall mean common stock, par value $.10 per
share, of the Corporation, or any successor or parent corporation thereto.
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(g) "Corporation" shall mean the Beckley Bancorp, Inc., the parent
corporation of the Savings Bank, or any successor or Parent thereof.
(h) "Director" shall mean a member of the Board of the Corporation
or the Savings Bank, or any successor or parent corporation thereto.
(i) "Director Emeritus" shall mean a person serving as a director
emeritus, advisory director, consulting director or other similar position as
may be appointed by the Board of Directors of the Savings Bank or the
Corporation from time to time.
(j) "Disability" means any physical or mental impairment which
renders the Participant incapable of continuing in the employment or service of
the Savings Bank or the Parent in his then current capacity as determined by the
Committee.
(k) "Effective Date" shall mean the date specified in Section 11
hereof.
(l) "Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange, then the Fair Market Value per
Share shall be not less than the average of the highest and lowest selling price
of such Common Stock on such exchange on such date, or if there were no sales on
said date, then the Fair Market Value shall be not less than the mean between
the last bid and ask price on such date.
(m) "Stock Option" shall mean an option to purchase shares of Common
Stock granted pursuant to Section 8 hereof, which option is not intended to
qualify under Section 422 of the Code as an incentive stock option.
(n) "Optioned Stock" shall mean stock subject to a Stock Option
granted pursuant to the Plan.
(o) "Optionee" shall mean any person who receives a Stock Option or
Award pursuant to the Plan.
(p) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Subsections 424(e) and (g) of the
Code.
(q) "Participant" means any director of the Corporation or any
Parent or Subsidiary of the Corporation who by the express terms of the Plan is
granted an Award.
(r) "Plan" shall mean the Beckley Bancorp, Inc. 1996 Directors Stock
Option Plan.
(s) "Savings Bank" shall mean Beckley Federal Savings Bank, Beckley,
West Virginia, or any successor corporation thereto.
(t) "Share" shall mean one share of the Common Stock.
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(u) "Subsidiary" shall mean any present or future corporation which
constitutes a "subsidiary corporation" as defined in Subsections 424(f) and (g)
of the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 9 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 30,000 shares of
Common Stock. Such Shares may either be from authorized but unissued shares,
treasury shares or shares purchased in the market for Plan purposes.
If an Award shall expire, become unexercisable, or be forfeited for any
reason prior to its exercise, new Awards may be granted under the Plan with
respect to the number of Shares as to which such expiration has occurred.
4. Six Month Holding Period.
Except in the event of death or disability of the Optionee, a
minimum of six months must elapse between the date of the grant of an Option and
the date of the sale of the Common Stock received through the exercise of such a
Stock Option.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be administered by
a the Committee which shall consist of at least three non-employee Directors of
the Corporation appointed by the Board and serving at the pleasure of the Board.
(b) Powers of the Committee. The Committee is authorized (but only
to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The President of the Corporation and such other officers as shall be
designated by the Committee are hereby authorized to execute written agreements
evidencing Awards on behalf of the Corporation and to cause them to be delivered
to the Participants. Such agreements shall set forth the Option exercise price,
the number of shares of Common Stock subject to such a Stock Option, the
expiration date of such a Stock Options, and such other terms and restrictions
applicable to such Award as are determined in accordance with the Plan or the
actions of the Committee.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
6. Eligibility for Awards and Limitations.
Stock Options under the Plan shall be granted in accordance with
Section 8 of the Plan to non-employee Directors of the Corporation and the
Savings Bank.
A-3
<PAGE>
7. Term of the Plan. The Plan shall continue in effect for a term of ten
(10) years from the Effective Date. No Stock Option shall be granted under the
Plan after ten (10) years from the Effective Date.
8. Terms and Conditions of Stock Options. Each Stock Option granted
pursuant to the Plan shall be evidenced by an instrument in such form as the
Committee shall from time to time approve. Each Stock Option granted pursuant to
the Plan shall comply with and be subject to the following terms and conditions.
(a) Option Price. The exercise price per Share of Common Stock for
each Stock Option granted pursuant to the Plan shall be equal to the Fair Market
Value of such Common Stock on the Effective Date as determined by the Committee
in good faith.
(b) Awards. Upon the Effective Date, each non-employee Director of
the Corporation shall be granted a Stock Option to purchase 6,000 shares of
Common Stock. Such Stock Options shall be first exercisable as of the date that
is six-months after the Effective Date; except however, such Stock Options shall
be immediately exercisable upon the death or Disability of the Participant.
(c) Term. The term of exercisability of each Stock Option granted
pursuant to the Plan shall be ten (10) years from the Effective Date.
(d) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Stock Option
granted hereunder which is not inconsistent with the terms of the Plan.
(e) Payment. Full payment for each Share of Common Stock purchased
upon the exercise of any Stock Option granted under the Plan shall be made at
the time of exercise of each such Stock Option and shall be paid in cash (in
United States Dollars), Common Stock or a combination of cash and Common Stock.
Common Stock utilized in full or partial payment of the Option exercise price
shall be valued at its Fair Market Value at the date of exercise. The
Corporation shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No Shares of Common Stock shall be issued
until full payment has been received by the Corporation and no Optionee shall
have any of the rights of a stockholder of the Corporation until the Shares of
Common Stock are issued to the Optionee.
(f) Cashless Exercise. An Optionee who has held a Stock Option for
at least six months may engage in the "cashless exercise" of the Option. Upon a
cashless exercise, an Optionee gives the Corporation written notice of the
exercise of the Stock Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Corporation to pay the Option
exercise price and any applicable withholding taxes. If the Optionee does not
sell the Optioned Stock through a registered broker-dealer or equivalent third
party, the Optionee can give the Corporation written notice of the exercise of
the Option and the third party purchaser of the Optioned Stock shall pay the
Option exercise price plus any applicable withholding taxes to the Corporation.
A-4
<PAGE>
(g) Transferability. Any Stock Option granted pursuant to the Plan
shall be exercised during an Optionee's lifetime only by the Optionee to whom it
was granted and shall not be assignable or transferable otherwise than by will
or by the laws of descent and distribution.
(h) Exercisability Following Death. In the event of the death of an
Optionee, any Stock Options granted to such Optionee may thereafter be exercised
by the person or persons to whom the Optionee's rights under any such Stock
Options pass by will or by the laws of descent and distribution (including the
Optionee's estate during the period of administration) at any time prior to the
normal expiration date of such Option. At the discretion of the Committee, upon
exercise of such Options, the Optionee may receive Shares or cash or a
combination thereof. If cash shall be paid in lieu of Shares, such cash shall be
equal to the difference between the Fair Market Value of such Shares and the
exercise price of such Options on the exercise date.
9. Recapitalization, Merger, Consolidation, Change in Control and Other
Transactions.
(a) Adjustment. Subject to any required action by the stockholders
of the Corporation, within the sole discretion of the Committee, the aggregate
number of Shares of Common Stock for which Options may be granted hereunder, the
number of Shares of Common Stock covered by each outstanding Option, and the
exercise price per Share of Common Stock of each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Corporation
(other than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Corporation,
as determined by the Committee. In the event of such a Change in Control, the
Committee and the Board of Directors will take one or more of the following
actions to be effective as of the date of such Change in Control:
(i) provide that such Options shall be assumed, or equivalent
options shall be substituted, ("Substitute Options") by the acquiring or
succeeding corporation (or an affiliate thereof), provided that: (A) any such
Substitute Options exchanged for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of such Substitute Options shall constitute securities
registered in accordance with the Securities Act of 1933, as amended, ("1933
Act") or such securities shall be exempt from such registration in accordance
with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon consummation of the Change in Control
transaction a cash payment for each Option surrendered equal to the difference
between (1) the Fair Market Value of the consideration to be received for each
share of Common Stock in the Change in Control transaction times the number of
shares of Common Stock subject to such surrendered Options, and (2) the
aggregate exercise price of all such surrendered Options, or
(ii) in the event of a transaction under the terms of which the
holders of the Common Stock of the Corporation will receive upon consummation
thereof a cash payment (the "Merger Price") for each share of Common Stock
exchanged in the Change in Control transaction, to make or to provide
A-5
<PAGE>
for a cash payment to the Optionees equal to the difference between (A) the
Merger Price times the number of shares of Common Stock subject to such Options
held by each Optionee (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such surrendered
Options in exchange for such surrendered Options.
(c) Extraordinary Corporate Action. Notwithstanding any provisions
of the Plan to the contrary, subject to any required action by the stockholders
of the Corporation, in the event of any Change in Control, recapitalization,
merger, consolidation, exchange of Shares, spin-off, reorganization, tender
offer, partial or complete liquidation or other extraordinary corporate action
or event, the Committee, in its sole discretion, shall have the power, prior or
subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common Stock
subject to each Option, the Option exercise price per Share of Common Stock, and
the consideration to be given or received by the Corporation upon the exercise
of any outstanding Option;
(ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan
as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable.
Except as expressly provided in Sections 9(a), 9(b) and 9(e) hereof,
no Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 9.
(d) Acceleration. The Committee shall at all times have the power to
accelerate the exercise date of Options previously granted under the Plan.
(e) Non-recurring Dividends. Upon the payment of a special or
non-recurring cash dividend that has the effect of a return of capital to the
stockholders, the Option exercise price per share shall be adjusted
proportionately with regard to such special or non-recurring cash dividends.
10. Date of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Plan is adopted by the
Board of the Corporation. Notice of the grant of an Option shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant in a form determined by the Committee.
11. Effective Date. The Plan shall become effective upon the date of
adoption of the Plan by the Board of the Corporation.
12. Modification of Options. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on the Optionee by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 13 hereof.
A-6
<PAGE>
13. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or discontinue
the Plan, except that no action of the Board may increase (other than as
provided in Section 9 hereof) the maximum number of Shares permitted to be
issued under the Plan.
(b) Change in Applicable Law. Notwithstanding any other provision
contained in the Plan, in the event of a change in any federal or state law,
rule or regulation which would make the exercise of all or part of any
previously granted Option unlawful or subject the Corporation to any penalty,
the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.
14. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
Cancellation of Option Rights.
(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, ("1933 Act") the rules and regulations
promulgated thereunder, including Rule 144 of the 1933 Act, any applicable state
securities laws and the requirements of any stock exchange upon which the Shares
may then be listed.
(b) The inability of the Corporation to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Corporation's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder shall relieve the Corporation of any
liability in respect of the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Corporation may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the termination
of employment or service of an Optionee by the Corporation or its Subsidiaries
for "cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by the Board of
Directors, all Options held by such Participant shall cease to be exercisable as
of the date of such termination of employment or service.
(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Corporation under Section 16(b) of the Securities Exchange Act of 1934, as
amended, and regulations promulgated thereunder.
15. Reservation of Shares. During the term of the Plan, the Corporation
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
A-7
<PAGE>
16. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Corporation by reason of the Plan
or the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
17. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options under
the Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, the Corporation shall have the right to
require the Participant or such other person to pay the Corporation the amount
of any taxes which the Corporation is required to withhold with respect to such
Shares, or, in lieu thereof, to retain, or to sell without notice, a number of
such Shares sufficient to cover the amount required to be withheld.
18. No Employment Rights. No Director shall have a right to be selected as
a Participant under the Plan. Neither the Plan nor any action taken by the Board
or the Committee in administration of the Plan shall be construed as giving any
person any rights of employment or retention as a Director or in any other
capacity with the Corporation, the Savings Bank or other Subsidiaries.
19. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of West Virginia, except to the extent
that federal law shall be deemed to apply.
A-8
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
<PAGE>
BECKLEY BANCORP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Twelve
Months Ended
December 31, 1996
-----------------
Net income...................... $275,518
-------
Primary and fully diluted average
shares outstanding net of 18,482
unallocated ESOP shares and
including 1,982 shares
attributable to outstanding
options determined under
the treasury stock method....... 584,965
-------
Per Share Amount................ $ 0.47
-----
EXHIBIT 13
Annual Report to Stockholders for Fiscal Year
Ended December 31, 1996
<PAGE>
BECKLEY BANCORP, INC.
[EAGLE LOGO]
ANNUAL REPORT
1996
<PAGE>
SELECTED FIVE YEAR FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996(1) 1995 1994(2) 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Selected financial
condition data:
<S> <C> <C> <C> <C> <C>
Total assets $ 45,964 $ 45,213 $ 42,372 $ 37,883 $ 36,680
Loans receivable, net 16,484 15,966 13,792 12,086 10,917
Investment securities(3) 6,995 9,014 11,412 1,061 5,545
Collateralized mortgage-
backed obligations
and other mortgage-
backed securities(3) 16,484 17,954 14,546 17,189 12,489
Deposit accounts 32,246 33,427 32,191 32,790 31,727
Shareholders' equity 11,282 11,268 9,843 4,868 4,653
Selected operations data:
Interest income 3,097 3,109 2,417 2,245 2,355
Interest expense 1,382 1,312 1,067 1,136 1,413
- -----------------------------------------------------------------------------------
Net interest income 1,715 1,707 1,350 1,109 942
Provision for loan losses 52 81 30 15 3
- -----------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,663 1,626 1,320 1,094 942
Non-interest income 61 60 50 51 39
Gain on sale of securities 26 35 - - -
Non-interest expense 1,306 1,101 961 819 759
- -----------------------------------------------------------------------------------
Income before income taxes 444 620 409 326 219
Income tax expense 168 224 144 111 79
- -----------------------------------------------------------------------------------
Net income 276 396 265 215 140
- -----------------------------------------------------------------------------------
Earnings per share(4) $ .47 $ .69 $ .29 N/A N/A
===================================================================================
Selected Operating Ratios:
Return on average assets 0.62% 0.90% 0.65% 0.57% 0.39%
Return on average equity 2.47% 3.72% 3.57% 4.52% 3.07%
Average equity to
average assets 24.94% 24.27% 18.27% 12.70% 12.78%
Net interest rate spread 2.88% 3.03% 2.84% 2.68% 2.24%
Non-performing assets to
total assets 0.12% 0.12% 0.10% 0.36% 0.34%
Dividend payout ratio 70.21% 34.78% 0% N/A N/A
Number of:
Real estate loans
outstanding 445 442 439 458 476
Deposit accounts 4,370 4,479 4,355 4,494 4,426
Full service offices 2 2 2 2 2
(1) During the third quarter of 1996, the FDIC issued a one-time special
assessment on all SAIF insured institutions. This assessment of $212,000
reduced income before taxes by $212,000. If this assessment had not been
made, net income would have been $409,000 and earnings per share would
have been $0.69. See Note 12 to the Consolidated Financial Statements.
(2) One July 7, 1994 the Corporation issued 595,125 shares of common stock.
Net proceeds from the stock issuance totalled $5,599,272. See Note 2 to
the Consolidated Financial Statements.
(3) On January 1, 1994, the Corporation adopted the Financial Accounting
Standards Board's ("FASB") Statement of Accounting Standards Number 115
("SFAS" 115). As a result of adopting SFAS 115, the securities which are
classified as "available-for-sale" are reported at fair value. See
"Management's Discussion and Analysis - Impact of New Accounting
Standards" for detailed information.
(4) Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding. For 1994, earnings per share was
based on net income subsequent to the Corporation's issuance of common
stock on July 7, 1994. See Note 1 to the Consolidated Financial
Statements.
</TABLE>
2
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business of the Corporation and Beckley Federal Savings Bank
Beckley Bancorp, Inc. (the "Corporation") is a Delaware chartered
corporation with its headquarters located in Beckley, West Virginia. The
Corporation was organized in March 1994 at the direction of Beckley Federal
Savings Bank (the "Savings Bank") for the purpose of acquiring all of the
capital stock that the Savings Bank issued upon its conversion from the mutual
to stock form of ownership. The Corporation is a unitary savings and loan
holding company which, under existing laws, generally is not restricted in the
types of business activities in which it may engage provided that the Savings
Bank retains a specified amount of its assets in housing-related investments. At
the present time, because the Corporation does not conduct any active business,
the Corporation does not intend to employ any persons other than officers of the
Savings Bank. The Corporation utilizes the support staff of the Savings Bank
from time to time.
Beckley Federal is a federally chartered stock savings bank located in
Beckley, West Virginia. The Savings Bank was initially chartered in December
1939 under the name of Beckley Federal Savings and Loan Association and
commenced operations in early 1940. In 1990, the Savings Bank changed its mutual
charter from that of a federal savings and loan association to that of a federal
savings bank and concurrently changed its name to Beckley Federal Savings Bank.
The Savings Bank's deposits are federally insured by the Federal Deposit
Insurance Corporation ("FDIC"). Beckley Federal is primarily engaged in
attracting deposits from the general public and using those funds to originate
mortgage loans for the purchase or refinance of single-family homes in Beckley,
West Virginia and surrounding communities and for the purchase of
mortgage-backed and other securities. To a lesser extent, the Savings Bank also
originates consumer loans, construction loans and non-residential real estate
loans.
The largest component of the Corporation's net income is net interest
income, which is the difference between interest income and interest expense.
Consequently, the Corporation's earnings are primarily dependent on it net
interest income, which is determined by (i) the difference ("interest rate
spread") between rates of interest earned on interest-earning assets and rates
paid on interest-bearing liabilities, and (ii) the relative amounts of
interest-earning assets and interest-bearing liabilities. Because most deposits
react more quickly to market interest rate movements than do traditional
mortgage loans and long term investment securities due to their shorter terms to
maturity, sharp increases in interest rates will generally adversely affect the
Corporation's earnings. The Corporation's net income is also affected by its
provision for loan losses, as well as the amount of non-interest income and
non-interest expenses, such as salaries and employee benefits, deposit insurance
premiums, occupancy and equipment costs and income taxes. Each of these
components is discussed under "Results of Operations".
Currently, the Federal Deposit Insurance Corporation ("FDIC") administers
two separate insurance funds, the Bank Insurance Fund ("BIF"), whose members are
primarily commercial banks, and the Savings Association Insurance Fund ("SAIF"),
whose members are primarily savings associations such as the Savings Bank. In
September 1995, the FDIC lowered the insurance premium for members of the BIF to
a range of between 0.04% and 0.31% of deposits. Additionally, effective January
1996, the total annual premium for most BIF members was further reduced to a
flat fee of $2,000. During this period, the Savings Bank was paying an annual
insurance premium to the SAIF equal to 0.23% of deposits. This disparity placed
all SAIF members, including the Savings Bank, at a material competitive
disadvantage.
On September 30, 1996, a bill was signed into law by the President
mandating a one-time special premium assessment on the deposits of all SAIF
members of approximately .657% based on the March 31, 1995 assessment base to
fully capitalize the SAIF. This resulted in the Bank incurring a one-time charge
of $212,000 on September 30, 1996. As a result of this new law, the Savings Bank
expects to pay a premium equal to .065% of insured deposits for the years 1997
through 1999. During these years, most BIF institutions are expected to pay
premiums equal to .013% of deposits. Thereafter, assessments for BIF and SAIF
members should be equal.
3
<PAGE>
The new law also contained additional provisions which are of great
importance to the Savings Bank. The U.S. Department of the Treasury is required
to provide Congress with a report, due in early 1997, on the effects of
re-chartering thrifts to bank charters. Depending on the report, the possibility
exists that all thrifts will be required to obtain a bank charter. If this is
done on or before January 1, 1999, the BIF and SAIF will be merged at that time
and assessments for both BIF and SAIF insured institutions will become equal on
that date.
An additional bill was signed into law during 1996 addressing the bad debt
reserves of thrift institutions. Under prior law, if the Savings Bank were to
change to a commercial bank charter, fail to maintain at least 60% of its assets
as "qualifying assets", as defined in the Internal Revenue Code, or be merged
into a commercial bank, it would be required to, in effect, reverse the tax
deductions previously taken for additions to its bad debt reserves. The amount
of pre-1988 reserves on the books of the Savings Bank at December 31, 1996, for
which no current or deferred provision for income taxes had been established,
was approximately $1.4 million. As a result of the enactment of the new law, the
Savings Bank will now be able to change to a commercial bank charter, diversify
its asset structure or be merged into a commercial bank without having to
recapture any of its pre-1988 reserve additions. Any reserves accumulated above
the December 31, 1987 level will be subject to recapture. The Savings Bank has
not added to its bad debt reserve since the December 1987 level.
As discussed in detail in the Corporation's 1995 Annual Report, the
Savings Bank is planning on constructing a new office building on a piece of
property currently owned which is adjacent to its branch facility. Due to
unexpected delays in the architectural process and the winter weather season,
construction has not yet begun. Prior to the end of the second quarter of 1997,
the Board will again review the plans and anticipated costs associated with the
proposed building before giving final approval to commence construction.
As of December 31, 1996, the Savings Bank has incurred approximately
$112,000 in architectural and engineering fees associated with the proposed
building. Such fees are expected to be capitalized as part of the cost of the
project. Should the project be terminated for any reason, such fees will be
charged to non-interest expense in the period in which termination occurs and
net income will likely be reduced by a material amount.
Financial Condition
At December 31, 1996, the Corporation's total assets were $45.96 million,
increasing $0.75 million, or 1.7% from $45.21 million at December 31, 1995. This
increase was primarily due to an increase in loans receivable and partially
offset by decreases in investment securities and collateralized mortgage
obligations and other mortgage-backed securities.
Cash and cash equivalents decreased slightly during the year. At December
31, 1996, cash and cash equivalents totalled $1.25 million compared to $1.37
million one year earlier. This decrease is equal to $0.12 million, or 8.8% and
is primarily attributable to a $0.05 million decrease in the balance in interest
bearing deposits and a $.07 million decrease in cash and due from banks.
The Corporation's investment securities decreased $2.02 million, or 22.4%
from $9.01 million at December 31, 1995 to $6.99 million at December 31, 1996.
This decrease is the result of a $3.00 million decrease in the amortized cost of
securities classified as held-to-maturity and partially offset by a $0.75
million increase in the amortized cost of securities classified as
available-for-sale, a $0.23 million increase in the gross unrealized gains on
securities classified as available-for-sale.
Collateralized mortgage obligations and other mortgage-backed securities
decreased $1.47 million, or 8.2% to $16.48 million at December 31, 1996 from
$17.95 million one year earlier. This decrease resulted from a $0.45 million
decrease in the unrealized gains on securities classified as available-for-sale
and principal repayments and prepayments of $1.02 million.
Net loans increased $4.21 million, or 26.4% from $15.97 million at
December 31, 1995 to $20.18 million at December 31, 1996. This increase is
primarily attributable to a net increase in loans made to customers.
Approximately 500 non-mortgage loans were originated during the year totalling
$5.91 million net of principal repayments of $2.71 million. This represents an
increase of 118.6% to $5.90 million
4
<PAGE>
at December 31, 1996 from $2.70 million at December 31, 1995. The increase in
the non-mortgage loan portfolio primarily consists of loans secured by new and
used automobiles. Mortgage loan originations totalled $4.49 million which was
offset by principal repayments of $3.44 million. As a result of the substantial
increase in the non-mortgage loan portfolio, the allowance for loan losses was
increased by $0.05 million.
Bank premises and equipment increased $0.11 million, or 24.9% from $0.44
million at December 31, 1995 to $0.55 million at December 31, 1996. This
increase is primarily due to expenditures relating to the proposed new office
building and partially offset by depreciation expense. See the previous section
entitled "Business of the Corporation and Beckley Federal Savings Bank" for
details of such expenditures and the proposed office building.
Total liabilities increased $0.73 million, or 2.2% from $33.95 million at
December 31, 1995 to $34.68 million at December 31, 1996. This increase is
primarily attributable to an increase in advances from the Federal Home Loan
Bank and partially offset by a decrease in deposit accounts.
Deposit accounts decreased $1.18 million, or 3.5% from $33.43 million at
December 31, 1995 to $32.25 million at December 31, 1996. This is the result of
decreases in the balances in passbook savings and NOW/Super NOW and money market
checking accounts which is partially offset by an increase in the balances in
certificate of deposit accounts.
Income taxes payable decreased $0.01 million, or 100% from $0.01 million
at December 31, 1995 to $0 at December 31, 1996. This is the result of decreased
taxable income in 1996 resulting in a small prepaid income tax balance which is
included in other assets.
Federal Home Loan Bank advances increased from $0 at December 31, 1995 to
$2.00 million at December 31, 1996. The Bank has used these funds for investment
in short-term government agency securities. Details of the advances can be found
in Note 9 to the Consolidated Financial Statements.
Deferred income taxes decreased $0.1 million, or 43.7% to $0.12 million at
December 31, 1996 from $0.22 million one year earlier. This is primarily due to
a decrease in the fair values of securities classified as available-for-sale.
Shareholders' equity increased $0.01 million, or 0.1% from $11.27 million
at December 31, 1995 to $11.28 million at December 31, 1996. This increase is
primarily attributable to net income of $0.28 million. Several other factors
affected the separate components of stockholders' equity including dividend
payments, Employee Stock Ownership Plan allocations and the issuance of
additional shares of common stock to the Management Stock Bonus Plan. In
addition, the Corporation experienced a $0.14 million decrease in the net
unrealized gain on securities classified as available-for-sale. Please refer to
the Consolidated Statements of Changes in Stockholders' Equity, which is a part
of the Consolidated Financial Statements, for specific details.
Results of Operation
Net income for the year ended December 31, 1996 decreased $120,000 or
30.4% to $276,000 from $396,000 for the year ended December 31, 1995. This
decrease was primarily due to a one-time special assessment by the Savings
Association Insurance Fund. This assessment resulted in a pre-tax charge to
income of $212,000. See the section entitled "Business of the Corporation and
Beckley Federal Savings Bank for specific information on this assessment. Had
this assessment not been made during the year, net income for the year ended
December 31, 1996 would have increased approximately $11,000 to $407,000, or
2.8% over the previous year.
Interest income increased $78,000, or 2.6% from $3,019,000 for the year
ended December 31, 1995 to $3,097,000 for the year ended December 31, 1996.
Increased interest income on loans and collateralized mortgage obligations
partially offset by decreased interest income on investments and interest
bearing deposits represents a majority of the increase. The Rate/Volume Analysis
Table included herein provides additional detail on the separate components of
interest income.
Interest expense for the year ended December 31, 1996 increased $69,000,
or 5.3% to $1,382,000 from $1,313,000 for the year ended December 31, 1995.
5
<PAGE>
Average Balance Sheet
- ---------------------
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods shown.
Average balances are derived from month end balances. Management does not
believe that the use of month end balances instead of average daily balances has
caused any material difference in the information presented.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------------------------ -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- -------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 18,523 $ 1,539 8.31% $ 14,933 $ 1,244 8.33% $ 12,909 $ 1,065 8.25%
Collateralized mortgage-
obligations and other
mortgage-backed securities 17,136 1,120 6.54 16,792 1,146 6.82 16,624 916 5.51
Investment securities(2) 7,976 427 5.35 10,848 617 5.69 9,933 426 4.29
Other interest-earning
assets(3) 173 11 6.36 174 12 6.90 172 10 5.81
-------- ------- ----- -------- ------- ----- -------- ------- ----
Total interest-earning
assets $ 43,808 $ 3,097 7.07% $ 42,747 $ 3,019 7.06% $ 39,638 $ 2,417 6.10%
======== ======= ==== ======== ======= ==== ======== ======= ====
Noninterest-earning assets 968 1,091 987
-------- -------- --------
Total assets $ 44,776 $ 43,838 $ 40,625
======== ======== ========
Interest-bearing liabilities:
Deposit accounts $ 32,270 1,345 4.17 $ 32,580 1,312 4.03 $ 32,775 $ 1,067 3.26
Other interest bearing
liabilities 692 37 5.85 - - - - - -
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities $ 32,962 $ 1,382 4.19% $ 32,580 $ 1,312 4.03% $ 32,775 $ 1,067 4.86%
======== ======= ==== ======== ======= ==== ======== ======= ====
Non-interest-bearing liabilities. 648 620 427
-------- ------- --------
Total liabilities $ 33,610 $ 32,200 $ 33,202
======== ======== ========
Retained earnings' 11,166 10,638 7,423
-------- -------- --------
Total liabilities and
retained earnings $ 44,776 $ 43,838 $ 40,625
======== ======== ========
Net interest income $ 1,715 $ 1,707 $ 1,350
======== ======= =======
Interest rate spread (4) 2.88% 3.03% 2.84%
====== ====== ======
Net yield on interest earning
assets(5) 3.91% 3.99% 3.41%
====== ====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 135.75% 131.21% 120.94%
====== ======= ======
</TABLE>
- -----------------------------------
(1) Average balances include non accrual loans.
(2) Includes interest bearing deposits in other financial institutions.
(3) Consists primarily of FHLB stock.
(4) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-
bearing liabilities.
(5) Net yield on interest earning assets represents net interest income as a
percentage of average interest-earning assets.
6
<PAGE>
Rate\Volume Analysis
- ---------------------
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest earning assets and interest bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by prior rate), (ii) changes in rate
(changes in rate multiplied by prior volume), and (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
---------------------------------------- ---------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- ---------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
-------- -------- -------- ------ --------- ------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-income:
Loans receivable $ 299 $ (3) $ (1) $ 295 $ 167 $ 10 $ 2 $ 179
Collateralized mortgage
obligations and other
mortgage-backed securities 22 (47) (1) (26) 9 219 2 230
Investment securities (163) (37) 10 (190) 39 139 13 191
Other interest earning assets - (1) - (1) - 2 - 2
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets $ 158 $ (88) $ 8 $ 78 $ 215 $ 370 $ 17 $ 602
======= ======= ======= ======= ======= ======= ======= =======
Interest-expense:
Savings accounts $ (12) $ 45 $ 0 $ 33 $ (6) $ 253 $ (2) $ 245
Other interest-bearing
liabilities - - 37 37 - - - -
Total interest-bearing
liabilities $ (12) $ 45 $ 37 $ 70 $ (6) $ 253 $ (2) $ 245
======= ======= ======= ======= ======= ======= ======= =======
Net change in net interest income $ 170 $ 133 $ (29) $ 8 $ 221 $ 117 $ 19 $ 357
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
This increase was mainly due to an increase in the average yields paid on
deposit accounts and interest expense on advances from the Federal Home Loan
Bank. For the year ended December 31, 1996, the average yield paid on deposit
accounts was 4.17% compared to 4.03% for the year ended December 31, 1995.
Net interest income increased $8,000, or 0.5% for the year ended December
31, 1996 to $1,715,000 from $1,707,000 for the year ended December 31, 1995.
This slight increase was the result of increased interest income which was
partially offset by increased interest expense. The average interest rate spread
decreased to 2.88% from 3.03% and the net yield on interest earning assets
decreased to 3.91% from 3.99%.
The allowance for loan losses was increased by $52,000 for the year ended
December 31, 1996 compared to an increase of $81,000 for the year ended December
31, 1995. The increase in this allowance is charged against income through the
provision for loan losses. The provision for loan losses is adjusted to reflect
the results of management's periodic evaluation of the adequacy of the
Corporation's allowance for such losses. The adequacy of the allowance is
determined by an evaluation of the loan portfolio including an evaluation of
each delinquent loan, past loan loss experience, current economic conditions,
volume, growth and the composition of the loan portfolio, and other relevant
factors. The adequacy of the allowance is reviewed on a quarterly basis. While
the Corporation maintains its allowance for losses on loans at a level it
considers to be adequate to provide for potential losses, there can be no
assurance that further additions will not be made to the allowance and that
losses, if any, will not exceed the amount provided by the allowance. The
increase in the provision for the year ended December 31, 1996 was primarily
7
<PAGE>
due to an increase in the size of the Corporation's non-mortgage loan portfolio,
which generally has a higher level of credit risk than loans secured by real
property.
Non-interest income decreased by $8,000, or 8.5% to $87,000 for the year
ended December 31, 1996 from $95,000 for the year ended December 31, 1995. The
primary contributor to this decrease was a $35,000 gain on the sales of
collateralized mortgage obligations and investment securities for the year ended
December 31, 1995 versus a $26,000 gain on the sale of investment securities for
the year ended December 31, 1996.
Non-interest expenses increased by $205,000, or 18.7% from $1,101,000 for
the year ended December 31, 1995 to $1,306,000 for the year ended December 31,
1996. This increase is the direct result of a one-time special assessment of the
Savings Association Insurance Fund of $212,000. See the section entitled
"Business of the Corporation and Beckley Federal Savings Bank for specific
information on this assessment. Excluding the effect of the special assessment,
non-interest expenses decreased by $6,000, or 0.6%. Occupancy and equipment
expense increased by $10,000 and other non-interest expenses decreased by
$4,000. Data processing expenses decreased by $8,000.
Income tax expense decreased $56,000, or 24.9% from $224,000 (an effective
tax rate of 35.9% on taxable income for federal and state income taxes) for the
year ended December 31, 1995 to $168,000 (an effective tax rate of 36.2% on
taxable income for federal and state income taxes) for the year ended December
31, 1996. The primary reason for this decrease was a decrease in pre-tax income.
Asset and Liability Management / Management Strategy
The Savings Bank's investment strategy remains focused on the origination
of one-to-four family mortgage loans and relatively short term non-mortgage
loans combined with investments in mortgage-backed and other securities issued
and guaranteed by agencies of the U.S. Government and government sponsored
enterprises. The Savings Bank's mortgage lending programs allow it to serve the
housing needs of its local community by offering long-term fixed and adjustable
rate loans. Although the long-term fixed rate loans increase the Savings Bank's
interest rate risk, the Savings Bank uses adjustable rate mortgage loans and
adjustable rate mortgage-backed securities to minimize this risk. Investments in
agency securities are generally directed into instruments having either an
adjustable interest rate or a maturity of three years or less.
To provide for a stable source of funding for the Savings Bank's
investment objectives, the Savings Bank continually manages the interest rates
it pays on its deposits. Through its deposit management strategies, the Savings
Bank has historically been able to control its cost of funds while maintaining a
stable deposit base and providing convenient and quality services to its
customers. These strategies have also allowed the Savings Bank to maintain
profitability and a strong capital position through growth at a rate that does
not exceed its ability to generate earnings.
Liquidity and Capital Resources
The Savings Bank is required to maintain minimum levels of liquid assets,
as defined by the Office of Thrift Supervision (the "OTS). This requirement,
which may be varied from time to time, depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term borrowings.
The required minimum ratio is currently 5%. The Savings Bank has historically
maintained a level of liquid assets in excess of regulatory requirements, and
the Savings Bank's liquidity ratio averaged 20.12% during the month ended
December 31, 1996. The Savings Bank manages its liquidity ratio to meet its
funding needs including" deposit outflows; disbursement of payments collected
from borrowers for taxes and insurance; and loan principal disbursements. The
Savings Bank also manages its liquidity ratio to meet its asset and liability
management objectives.
The Savings Bank's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities and funds provided from
operations. While scheduled loan repayments are a relatively predictable source
of funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic
8
<PAGE>
conditions and competition. The Savings Bank strives to
manage the pricing of its deposits to maintain a balanced stream of cash flows
commensurate with its loan commitments and other predictable funding needs. The
Savings Bank also has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include advances from the Federal Home Loan
Bank of Pittsburgh along with readily marketable investment securities and
mortgage-backed and related securities.
The Savings Bank anticipates that it will have sufficient funds available
to meet its current loan commitments, normal savings withdrawals and the
proposed construction project. At December 31, 1996, the Savings Bank had
outstanding loan commitments of $133,000. In addition, it had certificates of
deposit scheduled to mature within one year of $15,722,000. Management believes
that a substantial portion of such deposits will remain with the Savings Bank.
As required by the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), the OTS prescribed three separate standards of capital
adequacy. The regulations require financial institutions to have minimum
tangible capital equal to 1.50% of tangible assets; minimum core capital equal
to 3.00% of adjusted tangible assets; and minimum risk-based capital equal to
8.00% of risk-adjusted assets. At December 31, 1996, the Savings Bank's capital
was well in excess of regulatory requirements as follows: Tangible Capital was
equal to 16.9% of tangible assets; Core Capital was equal to 16.9% of adjusted
tangible assets; and Risk-based Capital was equal to 42.4% of risk-adjusted
assets. For additional detail on the Savings Bank's capital position, see Note
12 to the Consolidated Financial Statements.
In August 1993, the OTS adopted a final rule incorporating an interest
rate risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest rate risk will be
subject to a deduction of its interest rate risk component from its total
capital for purposes of calculating the risk-based capital requirement. Because
the Savings Bank's asset size was less than $300 million and its risk-based
capital ratio was in excess of 12% at December 31, 1996, it is not currently
subject to the interest rate risk component.
Impact of New Accounting Standards
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards Number 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," which became effective for the
Corporation beginning January 1, 1996. SFAS 123 requires increased disclosure of
compensation expense arising from both fixed and performance-based stock
compensation plans. Such expense will be measured as the fair value of the award
at the date it is granted using an option pricing model. SFAS 123 encourages,
rather than requires, companies to adopt a new method that accounts for stock
compensation awards based on their estimated fair value. Companies are permitted
to continue accounting for stock-based compensation under Accounting Principles
Board ("APB") Opinion No. 25, however, certain items must be disclosed in the
notes to the financial statements. The Corporation has continued its application
of APB 25 in the consolidated financial statements and has disclosed pro forma
net income and earnings per share in a Note 11 to the Consolidated Financial
Statements, determined as if the Corporation had applied the new method.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Corporation and notes
thereto, presented elsewhere herein, have been prepared in accordance with
generally accepted accounting principles ("GAAP"). GAAP requires the measurement
of financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time and due to inflation. The impact of inflation is reflected in the increased
cost of the Corporation's operations. Unlike most industrial companies, nearly
all of the assets and liabilities of the Corporation are monetary in nature. As
a result, interest rates have a greater impact on the Corporation's performance
than does the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders of
Beckley Bancorp, Inc. and Subsidiary
Beckley, West Virginia
We have audited the accompanying consolidated statements of financial
condition of Beckley Bancorp, Inc. and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Beckley Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
results of their consolidated operations and cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Mason & Bashaw
Certified Public Accountants
Beckley, West Virginia
January 27, 1997
10
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and Cash Equivalents (Note 1) $ 1,249,750 $ 1,370,888
Investment Securities (Notes 1 and 3)
Available-for-sale (at fair value) 5,997,247 5,021,058
Held-to-maturity (fair values of $997,500 and
$3,993,000, respectively) 997,417 3,992,627
Collateralized Mortgage Obligations and Other
Mortgage-backed Securities (Notes 1 and 4)
Available-for-sale (at fair value) 16,483,878 17,953,830
Loans receivable, net (Notes 1 and 5) 20,180,072 15,965,582
Bank premises and equipment (Notes 1 and 6) 550,853 440,929
Federal Home Loan Bank stock - at cost 171,900 175,900
Accrued interest receivable (Note 7) 268,456 252,892
Other assets 64,501 39,626
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 45,964,074 $ 45,213,332
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposit accounts (Note 8) $ 32,246,179 $ 33,426,976
Income taxes payable (Note 10) xx 98,609
Federal Home Loan Bank advances (Note 9) 2,000,000 xx
Deferred income tax (Notes 1 and 10) 121,470 215,579
Other liabilities 314,466 203,914
- ------------------------------------------------------------------------------------------------------
Total Liabilities 34,682,115 33,945,078
======================================================================================================
Commitments (Note 13)
Stockholders' Equity (Note 2)
Preferred stock (par value of $.01 per share,
250,000 shares authorized; no shares issued
and outstanding) xx xx
Common stock (par value of $.10 per share,
1,250,000 shares authorized; 601,465 shares
issued and outstanding) 60,146 60,146
Additional paid-in capital 5,674,043 5,659,403
Retained earnings, substantially restricted (Notes 2 and 10) 105,474,077 5,390,944
Net unrealized gain on securities available-for-sale 285,649 425,522
Unearned compensation - ESOP (Note 11) (153,289) (184,818)
Unearned compensation - Management Stock Bonus Plan (Note 11) (58,667) (82,943)
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 11,281,959 11,268,254
======================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,964,074 $ 45,213,332
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME:
<S> <C> <C> <C>
Loans, including certain fees $1,539,467 $1,244,361 $1,064,541
Investment securities 340,773 422,872 120,508
Mortgage-backed securities 313,440 364,835 347,732
Collateralized mortgage obligations 806,347 781,501 567,971
Interest bearing deposit accounts 72,462 182,170 295,885
Dividends, FHLB and other 24,580 23,508 20,594
- ------------------------------------------------------------------------------------
Total Interest Income 3,097,069 3,019,247 2,417,231
- ------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 1,344,909 1,312,569 1,061,352
Other 37,107 xx 6,334
- ------------------------------------------------------------------------------------
Total Interest Expense 1,382,016 1,312,569 1,067,686
- ------------------------------------------------------------------------------------
Net Interest Income 1,715,053 1,706,678 1,349,545
Provision for losses on loans (Notes 1 and 5) 52,000 81,000 30,000
- ------------------------------------------------------------------------------------
Net Interest Income After Provision For
Losses On Loans 1,663,053 1,625,678 1,319,545
- ------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 48,418 46,657 40,865
Gain on sale of investments available-for-
sale (Note 3) 25,688 4,901 xx
Gain on sale of collateralized mortgage
obligations available-for-sale (Note 4) xx 30,010 xx
Other income 13,097 13,692 9,561
- ------------------------------------------------------------------------------------
Total Noninterest Income 87,203 95,260 50,426
- ------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 11) 515,203 515,233 469,603
Occupancy and equipment expense 79,916 70,508 66,022
Savings Association Insurance Fund assessment
(Note 12) 211,647 xx xx
Federal insurance premiums 71,425 74,393 77,864
Data processing expenses 112,564 120,730 112,744
Other (Note 14) 315,567 319,876 235,260
- ------------------------------------------------------------------------------------
Total Noninterest Expenses 1,306,322 1,100,740 961,493
- ------------------------------------------------------------------------------------
Income Before Income Taxes 443,934 620,198 408,478
Provision for income taxes (Note 10) 168,416 224,404 143,667
- ------------------------------------------------------------------------------------
Net Income $ 275,518 $ 395,794 $ 264,811
====================================================================================
Earnings Per Common Share (For Period
Subsequent to Initial Issuance of Common
Stock on July 7, 1994) $ .47 $ .69 $ .29
====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
Additional
Common Paid-In
Stock Capital
- ------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1994 $ xx $ xx
Net unrealized gain upon adoption of FASB 115,
net of income taxes (Note 1) xx xx
Sale and issuance of 595,125 shares of common stock
(Note 2) 59,512 5,539,760
Change in unrealized gain (loss) on securities
available-for-sale, net of tax (Note 1) xx xx
Common stock committed to be released for allocation -
ESOP (Note 10) xx xx
Increase in fair market value over cost of ESOP shares
committed to be released (Note 10) xx 2,232
Net income for year ended December 31, 1994 xx xx
- ------------------------------------------------------------------------------------
Balance at December 31, 1994 59,512 5,541,992
Dividends on common stock xx xx
Additional shares issued (6,340)/purchased (800) for
Management Stock Bonus Plan - at market value (Note 10) 634 107,146
Common stock committed to be released for allocation - ESOP xx xx
Increase in fair market value over cost of ESOP shares
committed to be released xx 10,265
Amortization of unearned compensation - Management Stock
Bonus Plan xx xx
Change in unrealized gain (loss) on securities available-
for-sale, net of tax (Notes 3 and 4) xx xx
Net income for year ended December 31, 1995 xx xx
-------- ----------
Balance at December 31, 1995 60,146 5,659,403
Dividends on common stock xx xx
Common stock committed to be released for allocation - ESOP xx xx
Increase in fair market value over cost of ESOP shares
committed to be released xx 14,640
Amortization of unearned compensation - Management
Stock Bonus Plan xx xx
Change in unrealized gain on securities available-for-sale,
net of tax (Notes 3 and 4) xx xx
Net income for year ended December 31, 1996 xx xx
- ------------------------------------------------------------------------------------
Balance at December 31, 1996 $60,146 $5,674,043
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
Unrealized Unearned
Retained Gain (Loss) Compensation
Earnings - on Securities Unearned Management
Substantially Available- Compensa- Stock
Restricted for-Sale tion - ESOP Bonus Plan Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 4,868,027 $ xx $ xx $ xx $ 4,868,027
Net unrealized gain upon adoption of FASB 115,
net of income taxes (Note 1) xx 395,248 xx xx 395,248
Sale and issuance of 595,125 shares of common stock
(Note 2) xx xx (238,050) xx 5,361,222
Change in unrealized gain (loss) on securities
available-for-sale, net of tax (Note 1) xx (1,072,218) xx xx (1,072,218)
Common stock committed to be released for allocation -
ESOP (Note 10) xx xx 23,805 xx 23,805
Increase in fair market value over cost of ESOP shares
committed to be released (Note 10) xx xx xx xx 2,232
Net income for year ended December 31, 1994 264,811 xx xx xx 264,811
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,132,838 (676,970) (214,245) xx 9,843,127
Dividends on common stock (137,688) xx xx xx (137,688)
Additional shares issued (6,340)/purchased (800) for
Management Stock Bonus Plan - at market value (Note 10) xx xx xx (121,380) (13,600)
Common stock committed to be released for allocation - ESOP xx xx 29,427 xx 29,427
Increase in fair market value over cost of ESOP shares
committed to be released xx xx xx xx 10,265
Amortization of unearned compensation - Management Stock
Bonus Plan xx xx xx 38,437 38,437
Change in unrealized gain (loss) on securities available-
for-sale, net of tax (Notes 3 and 4) xx 1,102,492 xx xx 1,102,492
Net income for year ended December 31, 1995 395,794 xx xx xx 395,794
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,390,944 425,522 (184,818) (82,943) 11,268,254
Dividends on common stock (192,385) xx xx xx (192,385)
Common stock committed to be released for allocation - ESOP xx xx 31,529 xx 31,529
Increase in fair market value over cost of ESOP shares
committed to be released xx xx xx xx 14,640
Amortization of unearned compensation - Management
Stock Bonus Plan xx xx xx 24,276 24,276
Change in unrealized gain on securities available-for-sale,
net of tax (Notes 3 and 4) xx (139,873) xx xx (139,873)
Net income for year ended December 31, 1996 275,518 xx xx xx 275,518
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 5,474,077 $ 285,649 $ (153,28) $ (58,667) $11,281,959
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Interest and dividends received $ 3,041,730 $ 3,026,274 $ 2,300,986
Service charges and other income 61,515 60,349 50,426
Interest paid (1,344,939) (1,312,566) (1,067,631)
Cash paid to employees and suppliers (1,239,677) (1,007,379) (903,142)
Income taxes paid (294,814) (187,266) (148,257)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 223,815 579,412 232,382
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED) BY INVESTING
ACTIVITIES:
Proceeds from sale of securities available for sale:
Investment security 50,688 960,938 xx
Collateralized mortgage obligation xx 993,589 xx
Purchases of investment securities:
Available-for-sale (3,000,000) (4,201,663) (3,417,570)
Held-to-maturity (3,492,054) (48,898,192) (6,700,000)
Purchases of CMO and mortgage-backed securities:
Available-for-sale xx (3,920,001) (4,555,114)
Proceeds from maturities or calls of
investment securities:
Available-for-sale 2,250,000 3,500,000 xx
Held-to-maturity 6,500,000 51,580,082 xx
Principal repayments on CMO's and mortgage-backed securities:
Available-for-sale 1,015,981 812,151 5,874,397
Net increase in loans to customers (4,258,689) (2,251,727) (1,744,870)
Redemption (purchase) of FHLB stock 4,000 (6,500) 10,700
Purchases of equipment (19,656) (21,655) (21,540)
Payments for architectural fees (110,337) xx xx
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activities (1,060,067) (1,452,978) (10,553,99)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Net decrease in customers' deposit accounts (1,180,797) (1,235,743) (599,131)
Advances from FHLB 2,000,000 xx xx
Changes in other liabilities 88,296 (93,473) 94,737
Acquisition of common stock for MSBP plan xx (13,600) xx
Net proceeds from sale of stock xx xx 5,599,272
Dividends paid (192,385) (137,688) xx
Purchase of stock by ESOP xx xx (238,050)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 715,114 990,982 4,856,828
- ---------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (121,138) 117,416 (5,464,787)
Cash and cash equivalents, beginning of year 1,370,888 1,253,472 6,718,259
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year (Note 1) $ 1,249,750 $ 1,370,888 $ 1,253,472
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------
RECONCILEMENT OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 275,518 $ 395,794 $ 264,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20,069 15,079 13,038
(Accretion) and amortization - net (31,974) (16,302) (19,062)
Provision for loan losses 52,000 81,000 30,000
Deferred income tax credit (11,962) (24,996) (7,646)
Gain on sale of securities (25,688) (34,911) xx
Deferred loan fees (7,801) (2,807) 8,878
ESOP benefits amortized 31,529 29,427 23,805
Amortization of unearned compensation - MSBP 24,276 38,437 xx
Increase in fair value of ESOP plan shares
committed to be released for allocation 14,640 10,265 2,232
(Increase) decrease in accrued interest
receivable and other assets (24,612) 30,458 (102,563)
Increase in prepaid income taxes (15,827) xx xx
Increase (decrease) in accrued interest
payable and other liabilities 22,256 (4,166) 15,833
(Decrease) increase in income taxes payable (98,609) 62,134 3,056
- ---------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities $ 223,815 $ 579,412 $ 232,382
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Beckley Bancorp, Inc.'s (the "Parent Company") principal asset is its
wholly-owned subsidiary, Beckley Federal Savings Bank (the "Savings Bank"). The
Savings Bank is a federally chartered stock savings bank organized and existing
under the laws of the United States Home Owner's Loan Act. The Savings Bank
provides a variety of financial services to individual and business customers
through its two locations in Beckley, West Virginia. This Southern West Virginia
area has been historically dependent on the coal mining industry. The Bank's
primary deposit products are interest-bearing checking, savings and certificate
accounts. Its primary lending product is single-family residential loans.
BASIS OF ACCOUNTING: The accounting and reporting practices of Beckley
Bancorp, Inc. and Subsidiary conform, in all material respects, to generally
accepted accounting principles ("GAAP") and to practices within the savings bank
industry. The following is a summary of the significant policies.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Beckley Bancorp, Inc. and Beckley Federal Savings Bank, its
wholly owned subsidiary. All material intercompany accounts and transactions
have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, demand deposits with banks and short-term
interest bearing deposits at the Federal Home Loan Bank with an original
maturity of three months or less. Cash and cash equivalents at December 31,
1996, 1995 and 1994 are detailed as follows:
1996 1995 1994
---------- ----------- ----------
Cash and due from banks $ 333,952 $ 405,754 $ 576,772
FHLB demand deposit 915,798 965,134 676,700
---------- ----------- ----------
$1,249,750 $1,370,888 $1,253,472
========== =========== ==========
INVESTMENT, CMO'S AND OTHER MORTGAGE-BACKED SECURITIES: FASB Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities" requires
that debt securities that the Company has both the positive intent and ability
to hold to maturity be carried at amortized cost. Debt securities that the
Company does not have the positive intent or ability to hold to maturity and all
marketable equity securities are classified as available-for-sale and carried at
estimated fair value. Unrealized holding gains and losses on securities
classified as available- for-sale are carried as a separate component of
shareholders' equity, net of taxes.
The Bank's mortgage-backed and related securities consist of mortgage-backed
participation certificates (PC's) and collateralized mortgage obligations
(CMO's). All of these securities have been issued by the Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC")
and Government National Mortgage Association ("GNMA"). The Bank's PC portfolio
consists of both fixed-rate and adjustable-rate instruments while the Bank's CMO
portfolio consists entirely of adjustable-rate instruments. All of the
adjustable-rate instruments have interest rates that reset monthly based on a
widely-used cost of funds index. At December 31, 1996, none of the Bank's CMO's
were classified as high risk under the Federal Financial Institution Examination
Council's guidelines, as adopted by the Office of Thrift Supervision under
thrift bulletin 52, for this type of investment.
Prior to January 1, 1994, the Bank classified all investments in equity,
debt, CMO and mortgage-backed securities as held for investment. Because of the
issuance of Statement 115, the Bank reevaluated its investment policies and as a
result concluded that all of its investment securities (equity, debt and
mortgage-backed) should be classified as available-for-sale upon adoption of the
Statement. Application of the new rules resulted in an increase of $395,248 in
equity, net of a $252,699 tax effect, as of January 1, 1994, representing the
recognition in equity of the unrealized appreciation at January 1, 1994.
Effective November 15, 1995, the FASB offered entities a one-time opportunity
to reclassify their accounting securities among Statement 115's three categories
(trading, available-for-sale and held-to-maturity). The Bank has made no
reclassifications under the provisions which expired December 31, 1995.
The amortized cost of debt securities classified as held-to-maturity or
available- for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends
16
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
are included in income from investments, while principal payments received on
mortgage-backed securities reduce the original investment. The cost of
securities sold is based on the specific identification method.
LOANS: Loans are stated at the unpaid principal amount outstanding, net of
unearned income, deferred fees and the allowance for losses. Interest on loans
is credited to income as earned and accrued, only if deemed collectible. The
Bank discontinues recognizing accrued interest when a loan is specifically
determined to be impaired or when payment of interest becomes past due by more
than ninety days. Unpaid interest previously accrued on those loans is reversed
from income. Non- accrual loans may be restored to accrual status when principal
and interest become current and full payment of principal and interest is
expected.
Loan origination fees and certain costs of originating and closing mortgage
loans are deferred and recognized over the life of the loans as an adjustment of
yield. These amounts are not considered material to operations.
ALLOWANCE FOR LOSSES ON LOANS: The allowance for loan losses is maintained at
a level believed adequate by management to absorb potential losses in the loan
portfolio. The amount of the allowance is based upon management's evaluation of
the collectibility of the loan portfolio, including historical loan loss
experience, growth and composition of the loan portfolio, known and inherent
risks in the portfolio, current economic conditions, adverse situations which
may affect the borrower's ability to repay, and the estimated value of any
underlying collateral. The allowance is increased by provisions for loan losses
charged against income, and reduced by charge-offs, net of recoveries.
Additions to the allowance for loan losses on mortgage loans are not
deductible for Federal income tax purposes. A separate bad debt deduction for
income tax purposes has been established (see Note 10). Additions to the
allowance for losses on consumer loans are generally tax deductible to the
extent that charge-offs are made during the tax year.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS: Real estate acquired in
settlement of loans is recorded, on the date acquired, at the lower of the
Bank's cost or management's estimate of its fair market value. Subsequent
adjustments made to reflect any decline in value below management's original
estimates are charged to current operations through the provision for losses on
real estate owned. Operating expenses of such properties, related income, and
gains and losses on their disposition are included in operations. The Bank held
no real estate acquired in the settlement of loans at December 31, 1996 or 1995.
BANK PREMISES AND EQUIPMENT: Office properties and equipment are carried at
cost less accumulated depreciation. Depreciation is computed primarily on the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives used to compute depreciation are: buildings and
improvements, ten to forty years; and furniture, fixtures and equipment, five to
ten years.
INCOME TAXES: The Bank has adopted SFAS No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial accounting
and reporting for income taxes (see Note 10). The difference between the
financial statement and tax bases of assets and liabilities is determined
annually. Deferred income tax assets and liabilities are computed for those
differences that have future tax consequences using the currently enacted tax
rates. Valuation allowances are established, if necessary, to reduce the
deferred tax asset to the amount that will more likely than not be realized.
Income tax expense is the current tax payable or refundable for the period plus
or minus the net change in the deferred tax assets and liabilities. The Bank
files a consolidated return with its subsidiary and allocates tax provisions
based upon the entities separate taxable income.
EARNINGS PER SHARE: The Company completed its initial stock offering on July
7, 1994, and, accordingly, earnings per share for 1994 was computed on net
income subsequent to July 7, 1994 and the weighted average number of common and
common equivalent shares outstanding. Common equivalent shares include shares
issuable upon exercise of dilutive options outstanding determined under the
treasury stock method. The Company accounts for the shares acquired by its ESOP
in accordance with Statement of Position 93-6 and the shares acquired for its
Management Stock Bonus Plan ("MSBP") in a manner similar to the ESOP shares;
shares acquired by the ESOP are not considered in the weighted average shares
outstanding until the shares are committed for allocation to an employee's
individual account. The weighted average number of common and common equivalent
shares outstanding for the periods indicated below are:
17
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
July 27, 1994 through December 31, 1994 571,320 shares
January 1, 1995 through December 31, 1995 574,050 shares
January 1, 1996 through December 31, 1996 584,965 shares
===============================================================================
USE OF ESTIMATES: The preparation of the financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts in the financial statements. Actual results could differ from
those estimates. Two such material estimates are the allowance for loan losses
and fair value of financial instruments (Note 15). Management uses current
available information to determine the allowance amount each reporting period.
Changes in local economic conditions, requirements of regulators and other
factors may require the bank to make further additions to the allowance for loan
losses. Therefore, it is reasonably possible that these estimates could change
materially in the future.
NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board
(FASB) has issued the following pronouncements.
The FASB has issued SFAS No. 122, "Accounting for Mortgage Service Rights"
and SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." SFAS No. 122 deals with selling or
securitizing of loans when mortgage servicing rights are retained. SFAS No. 125,
which is effective after December 31, 1996, provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities.
During 1996, Beckley Bancorp, Inc. and Subsidiary did not sell or securitize
loans and retain the mortgage servicing rights. Management does not anticipate
that SFAS No. 122 and No. 125 will have any impact upon its prospective
financial statements.
RECLASSIFICATIONS: Certain amounts in the 1994 and 1995 financial statements
have been reclassified to conform with the 1996 presentation.
OTHER POLICIES: Accounting policies regarding benefit plans and the fair
values of financial instruments are disclosed in Notes 11 and 15, respectively.
Note 2 - Conversion to Stock Ownership
At a special meeting on June 27, 1994, the members of the Savings Bank
approved management's plan to convert the Savings Bank from a federally
chartered mutual savings bank to a federally chartered stock savings bank. Under
the plan, the Parent Company acquired 100% of the stock of the Savings Bank for
$2,799,636. As part of the conversion to stock form, the Savings Bank formed an
Employee Stock Ownership Plan("ESOP") for eligible employees (see Note 11).
Shares of the Parent Company were offered for subscription to eligible members
of the Savings Bank, the Savings Bank's Employee Stock Ownership Plan (the
"ESOP") and certain other persons, as of specified dates, subject to various
subscription priorities. All stock was purchased in the subscription offering.
The transaction was in the form of a pooling of interests.
On July 7, 1994, Beckley Bancorp, Inc. (a Delaware Corporation) sold and
issued 595,125 shares of $.10 par value common stock at $10 per share (inclusive
of 23,805 shares acquired by the ESOP) and became the parent company of the
Savings Bank. Net proceeds of $5,599,272, representing gross proceeds net of
accumulated conversion and underwriting cost of $351,978, were reflected as
common stock and additional paid-in capital in the accompanying statement of
financial condition.
In accordance with OTS Regulations, at the time of conversion, the Savings
Bank segregated and restricted $4,868,027 of retained earnings in a liquidation
account for the benefit of eligible deposit account holders who continue to
maintain their accounts at the Savings Bank after the conversion. In the event
of a complete liquidation of the Savings Bank subsequent to the conversion, each
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted balances
of all qualifying deposits then held. The liquidation account will be reduced
annually at December 31st to the extent that eligible account holders have
reduced their qualifying deposits. The liquidation account approximated
$1,812,000 at December 31, 1996.
Subsequent to the conversion, the Parent Company or the Savings Bank may not
declare or pay a cash dividend on any of its shares of common stock if the
effect would reduce stockholders' equity below either the amount required for
the liquidation account discussed above or the applicable regulatory capital
requirements or if such declaration and payment would otherwise violate
regulatory requirements.
18
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Investment Securities
The following is a summary of available-for-sale and held-to-maturity
securities:
<TABLE>
<CAPTION>
Available-for-Sale Securities
- ------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
====================================================================================
December 31, 1996
FHLB - Floating rate
(Weighted average interest rate
<S> <C> <C> <C> <C>
of 4.31%) $1,985,878 $ 2,820 $ (928) $1,987,770
FHLB callable bonds - Fixed rate
(Weighted average interest rate
of 5.87%) 2,000,000 xx (20,211) 1,979,789
FHLMC callable bond - Fixed rate
(Weighted average interest rate
of 8%) 1,000,000 8,167 xx 1,008,167
FHLMC stock 36,249 985,272 xx 1,021,521
- ------------------------------------------------------------------------------------
$5,022,127 $ 996,259 $ (21,139) $5,997,247
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Security
- -------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------
December 31, 1996
<S> <C> <C> <C> <C>
FHLB - Discount note $ 997,417 $ 83 $ xx $ 997,500
=====================================================================================
Weighted average interest rate 5.47%
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Securities
- --------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
December 31, 1995
FHLB - Floating rate
(Weighted average interest rate
<S> <C> <C> <C> <C>
of 4.59%) $1,969,502 $ 7,347 $ (20,000) $1,956,849
FHLB callable bonds - Fixed rate
(Weighted average interest rate
of 6.88%) 2,003,750 933 xx 2,004,683
U.S. Treasury Bill (interest rate
of 5.39%) 243,244 589 xx 243,833
FHLMC stock and other marketable
securities 61,249 754,444 xx 815,693
- ------------------------------------------------------------------------------------
$4,277,745 $ 763,313 $ (20,000) $5,021,058
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Security
- --------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
December 31, 1995
<S> <C> <C> <C> <C>
FHLB - Discount note $3,992,627 $ 373 $ xx $3,993,000
======================================================================================
Weighted average interest rate 5.53%
======================================================================================
</TABLE>
19
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Investment Securities (continued)
The gross realized gain on sales proceeds of $50,688 and $960,938 on
available- for-sale securities totaled $25,688 and $4,901 for the years ended
December 31, 1996 and 1995. There were no realized losses. There were no sales
of investments securities during 1994. The adjustment, net of income tax, to
unrealized gains (losses) on available-for-sale investment securities included
as a separate component of shareholders' equity totaled $146,039, $332,165 and
($118,427) in 1996, 1995 and 1994, respectively.
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because the issuers of the securities
may have the right to prepay obligations without prepayment penalties.
Estimated
Amortized Fair
Cost Value
============================================================================
Available-for-Sale:
Due in one year or less $1,495,017 $1,494,878
Due after one year through five years 2,490,861 2,472,681
Due after five years through ten years 1,000,000 1,008,167
- ----------------------------------------------------------------------------
4,985,878 4,975,726
Equity securities 36,249 1,021,521
- ----------------------------------------------------------------------------
$5,022,127 $5,997,247
============================================================================
Held-to-Maturity:
Due in one year or less $ 997,417 $ 997,500
============================================================================
Investment securities with a carrying value of $495,806 had been pledged to
secure public deposits at December 31, 1996. There were no pledged securities at
December 31, 1995.
Note 4 - Collateralized Mortgage Obligations and Other Mortgage-Backed
Securities
The following is a summary of collateralized mortgage obligations and other
mortgage-backed securities:
<TABLE>
<CAPTION>
Available-for-Sale Securities
- -------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
=====================================================================================
<S> <C> <C> <C> <C>
December 31, 1996
Floating rate collateralized
mortgage obligations:
FNMA issues $ 9,636,540 $ 11,682 $ (459,549) $ 9,188,673
FHLMC issues 3,028,047 21,887 (109,055) 2,940,879
(Weighted average interest
rate of 6.15%)
Mortgage-backed P.C.'s:
GNMA fixed rate 471,942 47,711 xx 519,653
FHLMC fixed rate 529,346 25,226 xx 554,572
FNMA fixed rate 7,132 905 xx 8,037
FHLMC adj. rate 89,033 xx (1,933) 87,100
FNMA adj. rate 3,243,548 528 (59,112) 3,184,964
- --------------------------------------------------------------------------------------
(Weighted average interest
rate of 6.88%) $17,005,588 $ 107,939 $ (629,649) $16,483,878
======================================================================================
</TABLE>
20
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4 - Collateralized Mortgage Obligations and Other Mortgage-Backed
Securities (Continued)
<TABLE>
<CAPTION>
Available-for-Sale Securities
- ------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
====================================================================================
December 31, 1995
Floating rate collateralized
mortgage obligations:
<S> <C> <C> <C> <C>
FNMA issues $10,025,926 $ 15,784 $ (144,678) $ 9,897,032
FHLMC issues 3,027,816 26,796 (52,043) 3,002,569
(Weighted average interest
rate of 6.44%)
Mortgage-backed P.C.'s:
GNMA fixed rate 616,790 62,226 xx 679,016
FHLMC fixed rate 611,621 32,394 xx 644,015
FNMA fixed rate 7,322 858 xx 8,180
FHLMC adj. rate 102,107 xx (1,072) 101,035
FNMA adj. rate 3,630,133 13,714 (21,864) 3,621,983
- ------------------------------------------------------------------------------------
(Weighted average interest
rate of 7.15%)
$18,021,715 $ 151,772 $ (219,657) $17,953,830
====================================================================================
</TABLE>
The Bank has no principal only, interest only, or residual tranches in its
collateralized mortgage obligation portfolio.
The gross realized gain on sales proceeds of $993,589 on available-for-sale
collateralized mortgage obligations totaled $30,010 for the year ended December
31, 1995. There were no sales of these securities during 1996 and 1995. The
adjustment, net of income tax, to unrealized gains (losses) on
available-for-sale collateralized mortgage obligations and other mortgage-backed
securities included as a separate component of shareholders' equity totaled
($285,912), $770,327 and ($953,791) in 1996, 1995 and 1994, respectively.
There were no pledged collateralized mortgage obligations and other
mortgage-backed securities at December 31, 1996 and 1995.
Note 5 - Loans Receivable
Loans receivable at December 31, 1996 and 1995, consisted of the following:
1996 1995
==============================================================================
First mortgage loans:
One to four family dwellings $13,101,985 $12,213,937
Commercial 1,408,898 1,237,487
Construction 96,231 102,650
Loans secured by deposits 616,719 616,829
Consumer installment loans:
Auto and other personal 5,179,214 2,056,542
Commercial 103,538 24,907
- -----------------------------------------------------------------------------
Total Loans 20,506,585 16,252,352
Less: Allowance for losses (303,183) (255,000)
Net deferred loan fees and reserve for
uncollected interest. (23,330) (31,770)
- -----------------------------------------------------------------------------
$20,180,072 $15,965,582
=============================================================================
Weighted average interest rate 8.14% 8.34%
=============================================================================
21
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 - Loans Receivable (continued)
Nonaccruing loans at December 31 were as follows:
1996 1995
=====================================================================
Accumulated nonaccruing loans $ 53,176 $ 52,978
=====================================================================
Interest and fees on loans would have increased $1,166, $1,805 and $288 in
1996, 1995 and 1994, respectively, if nonaccruing loans had been accruing
interest at contract rates. Interest income recorded on such loans during 1996,
1995 and 1994 totaled $7,142, $2,923 and $2,998, respectively.
Activity in the allowance for loan losses is summarized as follows:
1996 1995 1994
- -----------------------------------------------------------------------
Balance, beginning of year $255,000 $174,000 $144,000
Provision for loan losses 52,000 81,000 30,000
Loans charged-off (3,817) xx xx
- -----------------------------------------------------------------------
Balance, end of year $303,183 $255,000 $174,000
=======================================================================
The Bank primarily originates single-family residential mortgage loans within
the Raleigh County, West Virginia area. General policy is to lend up to 80% of
the appraised value of the property securing the loan. Historically, Raleigh
County has been subject to economic fluctuations within the coal mining
industry.
Loans delinquent over 90 days for principal and interest payments
approximated .26% of the total loan balances at December 31, 1996. Management
anticipates no loss on these loans due to the collateral value exceeding the
loan principal outstanding.
The Bank was required to adopt the provisions of FASB 114 "Accounting by
Creditors for Impairment of a Loan" and FASB 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" during 1995. The
statements require that impaired loans that are within their scope be measured
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the loan's observable
market price or the fair market value of the collateral if the loan is
collateral dependent. Management has evaluated the loan portfolio at December
31, 1996 and 1995 and have determined that no impaired loans existed.
The Bank has granted loans to certain directors and officers of the Savings
Bank. Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $289,154 and
$196,946 at December 31, 1996 and 1995, respectively. During 1996, new loans
were $149,384 and repayments totaled $57,176.
Note 6 - Bank Premises and Equipment
The following is a detail of office properties and equipment at December 31,
1996 and 1995:
1996 1995
=========================================================================
Land and land improvements $379,953 $379,953
Office building - main 74,332 74,332
Office building - branch 86,570 86,570
Architectural fees, survey and other costs -
1729 Harper Road 112,492 2,155
Equipment, furniture and fixtures 317,064 299,566
- -------------------------------------------------------------------------
970,411 842,576
Accumulated depreciation 419,558 401,647
- -------------------------------------------------------------------------
$550,853 $440,929
=========================================================================
Architectural fees, survey and other costs are related to the future
construction of a new main office at 1729 Harper Road, Beckley, West Virginia.
The most recent proposal to construct the facility, as designed, totalled $1.513
million. Management is evaluating the construction costs and consideration is
being given to reducing the size of the currently designed facility. The Bank
has not entered into any formal contracts to construct the new main office.
22
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 7 - Accrued Interest Receivable
Accrued interest receivable at December 31 is summarized as follows:
1996 1995
===========================================================================
Interest bearing deposits $ 4,473 $ 14,291
Investment securities 55,835 39,977
Collateralized mortgage obligations 61,186 66,144
Mortgage-backed securities 28,950 34,367
Loans 118,012 98,113
- ----------------------------------------------------------------------------
$268,456 $252,892
============================================================================
Note 8 - Deposit Accounts
Deposit accounts at December 31 are comprised of:
<TABLE>
<CAPTION>
December 31,
1996
Account Type Interest Rate 1996 1995
========================================================================================
<S> <C> <C> <C>
Commercial NOW and business checking 0.00 - 1.0% $ 105,267 $ 256,046
Passbook, including 90 day and club
accounts 3.06 - 3.94% 7,368,380 8,140,105
NOW/SuperNOW accounts 2.00 - 2.47% 3,377,686 4,141,468
Money market checking 2.00 - 2.90% 1,366,923 1,584,198
Savings certificates 3.00 - 4.0% 312,653 5,802,065
4.01 - 5.0% 4,760,677 1,487,940
5.01 - 6.0% 13,829,657 8,497,439
6.01 - 7.0% 1,032,581 3,416,416
7.01 - 8.0% 92,355 101,299
- ----------------------------------------------------------------------------------------
$32,246,179 $33,426,976
=========================================================================================
</TABLE>
The weighted average interest rate of all deposits for the years ended
December 31, 1996 and 1995 was 4.25% and 4.03%, respectively.
The aggregate amount of certificates of deposit of $100,000 or more was
$3,839,000 at December 31, 1996 and $3,537,000 at December 31, 1995.
Scheduled maturities of savings certificates at December 31, 1996 are as
follows:
Weighted
Average
Interest
Balance Rate
===================================================================
Under 3 months $ 5,438,402 4.93%
4 to 12 months 10,283,477 5.15%
13 to 36 months 4,257,356 5.51%
37 to 48 months 48,688 5.29%
- -------------------------------------------------------------------
$20,027,923 5.17%
===================================================================
Interest expense by deposit category for the years ended December 31 is as
follows:
1996 1995 1994
===============================================================================
Passbook savings, including 90-day
and club accounts 234,410 $ 271,436 $ 369,379
NOW and money market accounts 123,473 145,326 150,429
Savings certificates 987,026 895,807 541,544
- -------------------------------------------------------------------------------
1,344,909 $1,312,569 $1,061,352
===============================================================================
23
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 - Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank at December 31, 1996 are as follows:
Short-term fixed rate - 5.93%,
due 1/15/97 $1,000,000
Repo plus - 5.55%, due 3/18/97 1,000,000
- ------------------------------------------------------------
$2,000,000
============================================================
The advances are unsecured with principal and interest payable at maturity. At
December 31, 1996, the Bank had a remaining unsecured credit line of $1,473,000
with the Federal Home Loan Bank ("FHLB"). The Bank also has the capacity to
borrow up to $13.5 million in additional funds from the FHLB using certain
assets as collateral.
Note 10 - Income Taxes
The Bank has previously qualified under provisions of the Internal Revenue
Code that allowed a special bad debt deduction limited generally to a percentage
of otherwise taxable income ("percentage of taxable income method") and subject
to certain limitations based upon aggregate loans and deposits. Under such
provisions, the Bank had established a bad debt reserve, for income tax purposes
only, of approximately $1,464,000. As a result of the Small Business Act of
1996, the "percentage of taxable income method" has been eliminated for tax
years beginning after December 31, 1995. The Bank is now required to use the
"experience method" for establishing bad debt reserves for income tax purposes.
The reserve previously established will become the Bank's beginning balance of
its experience reserve. Such reserves will be used to absorb losses on mortgage
loans for income tax purposes.
All or a portion of the $1,464,000 may be subject to income tax recapture
only if the Bank should liquidate or if the balance in its mortgage loan
portfolio at the end of any year falls below the balance in such portfolio at
December 31, 1987. Under these circumstances, all or a portion of the reserve
would be subject to Federal income tax at the then applicable rates. Management
does not anticipate the occurrence of any event that would cause any portion of
this reserve to be subject to recapture.
Income tax expense for the years ending December 31 is summarized as follows:
1996 1995 1994
================================================================
Federal:
Current $166,830 $236,121 $140,140
Deferred (10,933) (23,240) (7,066)
State:
Current 13,548 13,279 11,173
Deferred (1,029) (1,756) (580)
- ----------------------------------------------------------------
$168,416 $224,404 $143,667
================================================================
A reconciliation of the differences between the tax provision and tax expense
computed by applying the federal statutory income tax rate is as follows:
1996 1995 1994
================================================================================
Statutory Federal income tax rate 34% 34% 34%
- --------------------------------------------------------------------------------
Expected income tax expense at federal rate $150,900 $210,800 $138,900
Increase (decrease) in provision
resulting from:
State income taxes, net of
federal benefit 8,942 9,065 7,400
Dividends received deduction (3,275) (2,810) (2,475)
Other 11,849 7,349 (158)
- -------------------------------------------------------------------------------
$168,416 $224,404 $143,667
===============================================================================
Income tax expense applicable to securities transactions approximated $9,200 and
$13,000 for the years ended December 31, 1996 and 1995, respectively.
The net deferred tax liability in the accompanying balance sheet includes the
following amounts of deferred tax assets and liabilities:
24
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10 - Income Taxes (continued)
1996 1995
==============================================================================
Deferred tax asset:
Deferred loan fees $ 4,275 $ 5,992
Consumer loan loss reserve 56,601 41,382
Accrued health insurance 7,156 7,524
Unearned management stock bonus plan 5,103 5,326
- ------------------------------------------------------------------------------
73,135 60,224
Less valuation allowance (7,156) (7,524)
- ------------------------------------------------------------------------------
65,979 52,700
- ------------------------------------------------------------------------------
Deferred tax liability:
Post 1987 tax loan loss reserve (295) (295)
Accelerated depreciation for tax purposes (19,392) (18,075)
Unrealized gain on securities available-for-sale
(Note 1) (167,762) (249,909)
- ------------------------------------------------------------------------------
(187,449) (268,279)
- ------------------------------------------------------------------------------
Net Deferred Tax Liability $(121,470) $(215,579)
==============================================================================
The valuation allowance was established to reduce the deferred tax asset to
the amount that will more likely than not be realized.
Note 11 - Benefit Plans
Employee Retirement Plan:
Beckley Federal Savings Bank participates in the Financial Institutions
Retirement Fund multi-employer pension plan. This noncontributory defined
benefit plan covers all eligible employees meeting certain service and age
requirements. The plan operates on a fiscal year ending on June 30, and it is
the policy of the Bank to fund the normal cost of the plan. Plan contributions
for the years ending June 30, 1997, 1996 and 1995 were $4,647, $17,398 and
$38,709, respectively. Due to the fully funded status of the plan, the 1996
contribution was reduced below previous levels due to a future employee
contribution offset of $25,011. Pension plan expense was $10,958, $29,017 and
$35,270 for the years ended December 31, 1996, 1995 and 1994. If the plan ever
became underfunded and the Bank withdrew from the plan, it would be responsible
for its share of any unfunded benefit obligations. The data available at
December 31, 1996 from the administrators of the plan is not sufficient to
develop or determine the Bank's share of the pension plan's accumulated benefit
obligation, or the net assets attributable to the plan. The Bank has no
intention of withdrawing from the plan.
Employee Stock Ownership Plan:
At the time of the stock conversion, the Savings Bank established an employer
leveraged Employee Stock Ownership Plan ("ESOP") that covers all full-time
employees, age 21 and with one year of service. The ESOP borrowed $238,050 from
the Parent Company to purchase 23,805 shares of the Company's common stock, the
loan being collateralized by the common stock. The Savings Bank makes annual
contributions of $23,805 to the ESOP, which is equal to the ESOP debt service
requirement. As shares are committed to be released from collateral, the Savings
Bank reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction in retained
earnings; dividends on unallocated ESOP shares are retained to service the
ESOP's loan from the Company. ESOP compensation expense was $48,121, $41,596 and
$26,037 for the years ended December 31, 1996, 1995 and 1994. The ESOP shares as
of December 31, 1996 were as follows:
Allocated shares 4,787
Shares committed to be released 3,153
Unreleased shares 15,329
- ----------------------------------------------------------------
Total ESOP Shares 23,269
================================================================
Fair value of unreleased shares at
December 31, 1996 $264,425
================================================================
25
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11 - Benefit Plans (continued)
Management Stock Bonus Plan:
Upon approval by the Stockholders on May 23, 1995, the Savings Bank
established a Management Stock Bonus Plan ("MSBP"), the objective of which is to
reward and retain personnel of experience and ability in key positions of
responsibility with the Savings Bank. A maximum of 23,805 shares can be
purchased by the Plan. Upon the adoption of the Plan, five non-employee
Directors and one employee Director were awarded 1,190 non-forfeitable, except
for cause, plan shares each to be allocated at the rate of one-fifth as of the
Effective Date and an additional one-fifth following each of the next four
successive years. The total plan shares to be awarded to non-employee directors
shall not exceed 5,950 in the aggregate under the Plan. All employees are
eligible to receive benefits under the MSBP at the sole discretion of a
committee of not less than three non-employee members of the Savings Bank Board.
The MSBP is managed by trustees who are non-employee directors of the Savings
Bank.
The MSBP purchased 7,140 shares of the Parent Company's stock for $121,380
during 1995. Of the shares purchased, 6,340 were newly issued by Beckley
Bancorp, Inc. These shares were granted in the form of restricted stock payable
20% upon date of award (May 23, 1995) and the remaining shares issuable equally
over a four-year period beginning May 23, 1996. Compensation expense in the
amount of the fair market value of the common stock at the date of grant to the
individual, will be recognized over the period during which the shares are
payable. A recipient of such restricted stock is entitled to all voting and
other stockholder rights (including the right to receive dividends on issued and
non-issued shares), except that the shares, while restricted, may not be sold,
pledged or otherwise disposed of. If a recipient of such restricted stock grant
terminates employment for reasons other than death, disability or retirement,
the recipient forfeits all rights to the unissued shares under restriction. If
the participant's service terminates as a result of death, disability,
retirement or a change in control of the Savings Bank, all restrictions expire
and all shares unissued become unrestricted. The Board of Directors can
terminate the MSBP at any time, and if it does so, any shares not allocated will
revert to the Company.
Compensation expense under the plan was $20,751 and $36,914 for the years
ending December 31, 1996 and 1995, respectively.
Stock Option Plan:
Upon approval of the Stockholders, on May 23, 1995, Beckley Bancorp, Inc.
adopted the 1994 Stock Option Plan. The aggregate number of shares with respect
to which awards may be made pursuant to the Plan was limited to 59,512. On June
11, 1996, the Board of Directors of the Company adopted the 1996 Directors'
Stock Option Plan. A total of 30,000 shares were transferred from the 1994 Plan
into the 1996 Plan. The purpose of the Plans is to provide additional incentive
to certain officers, directors and key employees by facilitating their purchase
of a stock interest in the Company. The Option Plans provide for a term of ten
years, after which no awards may be made, unless such Plans are earlier
terminated by the Board of Directors.
The Option Plans are administered by a committee consisting of the
non-employee members of the Board of Directors (the "Option Committee"). The
Option Committee selects the employees to whom options are to be granted and the
number of shares to be granted. The option price may not be less than 100% of
the fair market value of the shares on the date of the grant, and no option
shall be exercisable after the expiration of ten years from the grant date. In
the case of any director or employee who owns more than 10% of the outstanding
common stock at the time the option is granted, the option price may not be less
than 110% of the fair market value of the shares on the date of the grant, and
the option shall not be exercisable after the expiration of five years from the
grant date. The exercise price may be paid in cash, shares of the common stock,
or a combination of both.
The following table provides details of the activity within the Option Plans
during the twelve-month period ended December 31, 1996:
Weighted-
Average
Exercise
Options Price
=============================================================================
Outstanding, January 1 17,250 $15.63
Granted 42,262 $18.25
Exercised xx
Forfeited (123) $18.25
- -----------------------------------------------------------------------------
Outstanding, December 31 59,389 $17.49
=============================================================================
Exercisable at end of year 58,868 $17.48
=============================================================================
Weighted-average fair value of options granted
during the year $5.46
=============================================================================
26
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11 - Benefit Plans (continued)
No options have expired under the Plans. The exercise prices on the options
outstanding range from $15.625 to $18.25 per share. The weighted average
remaining life of the options outstanding is 9.2 years.
Financial Accounting Standard No. 123, which became effective for 1996,
requires pro forma disclosures for companies that do not adopt its fair value
accounting method for stock-based compensation. Accordingly, the following pro
forma information presents net income and earnings per share had the Standard's
fair value method been used to measure compensation cost for stock option plans.
Compensation cost actually recognized for stock options was $0 for 1996 and
1995.
1996 1995
==================================================================
Net income as reported $275,518 $395,794
Pro forma net income $ 97,606 $337,830
Earnings per share as reported $ .47 $ .69
Pro forma earnings per share $ .17 $ .59
==================================================================
In future years, the pro forma effect of not applying this standard is not
expected to increase as additional options are not expected to be granted.
However, if additional options are granted in future years, the granting of such
options will likely increase the pro forma effect of not applying this standard.
The value of the options granted were estimated using the Black-Scholes
Option Value Model. For the options granted in 1995, the significant assumptions
used were (1) a risk-free interest rate of 6.50%, (2) a volatility factor on the
stock price of .066542, (3) an expected dividend yield of 2.00%, and (4) an
estimated life of ten years. For the options granted in 1996, assumptions used
were (1) a weighted-average risk-free interest rate of 6.84%, (2) a
weighted-average volatility factor of .090948, (3) an expected dividend yield of
2.00%, and (4) a weighted-average estimated life of ten years.
Note 12 - Regulatory Requirements and Restrictions
Beckley Federal Savings Bank is subject to requirements and restrictions
imposed by various federal regulators. These requirements, among other things,
establish minimum levels of capital and require that minimum cash reserve
balances be maintained.
The Savings Bank currently exceeds the following regulatory capital
requirements issued by the Office of Thrift Supervision pursuant to FIRREA: 1.5%
tangible capital requirement, 3% core capital requirement and 8% risked-based
capital requirement. The following schedule shows the Savings Bank's compliance
with regulatory capital standards at December 31, 1996:
<TABLE>
<CAPTION>
(In Thousands)
Risk-
Tangible Core Based
Capital Capital Capital
=====================================================================================
<S> <C> <C> <C>
Total stockholder's equity of Savings Bank $ 8,009 $ 8,009 $ 8,009
Adjustments:
Net unrealized gain on securities available
for sale (286) (286) (286)
Allowance for loan losses (limited to 1.25% of
risk-weighted assets) xx xx 235
Regulatory capital - computed 7,723 7,723 7,958
Minimum capital requirement 685 1,371 1,503
- -------------------------------------------------------------------------------------
Regulatory capital - excess $ 7,038 $ 6,352 $ 6,455
=====================================================================================
Regulatory capital - requirement 1.5% 3.0% 8.0%
Regulatory capital - computed 16.9% 16.9% 42.4%
</TABLE>
At December 31, 1996, regulatory assets used in computing tangible and core
capital requirements were $45,690,000. Total risk weighted assets at this date
were $18,790,000.
There were no material differences between the net income and retained
earnings presented in these financial statements and those reported for
regulatory purposes for each of the years ended December 31, 1996, 1995 and
1994.
27
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12 - Regulatory Requirements and Restrictions (continued)
The Federal Deposit Insurance Corporation ("FDIC") currently administers two
separate deposit insurance funds, the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). Due to the BIF being fully funded
and SAIF being underfunded, effective September 30, 1995, the FDIC substantially
lowered the insurance premium of the BIF members while maintaining the higher
rate for all SAIF members. Additionally, effective January 1996, the total
annual premium for most BIF members was lowered further to a flat $2,000 per
year. These reductions in insurance premiums for BIF members placed SAIF
members, such as the bank, at a material competitive disadvantage to BIF
members.
Effective September 30, 1996, federal law was revised to mandate a one-time
special premium assessment on SAIF members, such as the Bank, of approximately
65.7% per $100 of insured deposits held on March 31, 1995. The special
assessment was made to fully capitalize the SAIF to be at par with the BIF. The
Bank recorded a $211,647 pre-tax expense for this assessment during 1996.
Beginning January 1, 1997, deposit insurance assessments for SAIF members were
reduced to approximately 6.4% per $100 of insured deposits on an annual basis
through the end of 1999. During this same period, BIF members are expected to be
assessed approximately 1.3% per $100 of insured deposits. Beginning January 1,
2000, assessments for the BIF and SAIF members should be the same rate. The
higher premiums paid by SAIF members during this period will be used to pay the
obligations of the Financing Corporations debt obligation. Assuming the above
reduction, beginning January 1, 1997, the rate of deposit insurance premium
assessed the Bank will decline by approximately 70%.
Note 13 - Commitments
Loan commitments at December 31, 1996 were $133,000 for fixed and adjustable
rate real estate loans. The weighted average interest rate on these loan
commitments was 7.30% and they were approved under normal loan underwriting
standards established by the Bank.
Effective March 1, 1993, Beckley Federal Savings Bank entered into a
five-year agreement with FiServ, Inc. for the use of its data processing
services. The contract calls for annual increases over the prior year price not
to exceed 4%. The Bank may terminate the agreement by giving 180 days' written
notice. Total expense relating to the agreement was $49,789 in 1996, $52,818 in
1995 and $51,126 in 1994.
Effective January 1, 1997, the Bank entered into an employment agreement with
President Duane K. Sellards. The agreement is for a term of three years and has
a base salary of $116,000. The agreement is terminable by the Bank for just
cause, as defined by the agreement. Termination without just cause requires a
continuation of the agreement while an involuntary termination requires a lump
sum payment.
On January 22, 1997, the Board of Directors of Beckley Federal Savings Bank
received approval from the Office of Thrift Supervision to declare, at its next
regular meeting, a cash dividend to the Parent equal to 100% of the net income
for the year ended December 31, 1996. On January 14, 1997, the Board of
Directors of Beckley Bancorp, Inc. declared a $0.14 per share cash dividend and
$.08 special dividend payable on February 18, 1997 to the Corporation's
shareholder's of record as of January 31, 1997.
Note 14 - Other Expenses
Other operating expenses for the years ended 1996, 1995 and 1994 include:
<TABLE>
<CAPTION>
1996 1995 1994
=====================================================================================
<S> <C> <C> <C>
Director's fees $ 39,600 $ 39,000 $ 39,000
Management stock bonus plan - Non-employee
directors 17,292 30,762 xx
Payroll taxes 32,926 32,152 30,219
Personal property, franchise and other taxes 39,166 27,052 23,128
Legal, auditing and examinations 70,145 82,676 47,593
Other 116,438 108,234 95,320
- --------------------------------------------------------------------------------------
$315,567 $319,876 $235,260
======================================================================================
</TABLE>
28
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15 - Fair Value of Financial Instruments
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The Bank adopted the
provisions of SFAS No. 107 during the year ended December 31, 1995. The
estimated fair value amounts have been determined by Beckley Bancorp, Inc. and
Subsidiary using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Bank could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
The Bank's estimated fair value of financial instruments as of December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
=======================================================================================
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,250 $ 1,250 $ 1,371 $ 1,371
Investment securities:
Available-for-sale 5,997 5,997 5,021 5,021
Held-to-maturity 997 997 3,993 3,993
CMO's and other mortgage-backed
securities - available-for-sale 16,484 16,484 17,954 17,954
Loans receivable, net 20,180 20,283 15,966 16,337
Federal Home Loan Bank stock 172 172 176 176
Liabilities:
Demand and savings deposits 12,218 12,218 14,122 14,122
Certificates of deposit 20,028 20,038 19,305 19,336
Federal Home Loan Bank advances 2,000 2,000 xx xx
</TABLE>
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------
Contract Estimated Contract Estimated
or Unrealized or Unrealized
Notional Gain Notional Gain
Amount (Loss) Amount (Loss)
======================================================================================
Off-balance sheet financial instruments:
<S> <C> <C> <C> <C>
Lending commitments, fixed rate $ 133 $ xx $ 69 $ 2
======================================================================================
</TABLE>
The following methods and assumptions were used to determine the fair value
of financial instruments:
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment Securities - Fair values are based on quotes provided by a
recognized pricing service.
Collateralized and Other Mortgage-Backed Securities - Fair values are
based on quotes provided by a recognized pricing service.
Loans Receivable - Fair values are estimated for portfolios with similar
financial characteristics. Loans are segregated by type, such as single
family residential mortgages, multi-family residential mortgages,
non-residential and installment loans. Each loan category is further
segmented into fixed and variable interest rate categories. Future cash
flows of these loans are discounted using the current rates at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
29
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15 - Fair Value of Financial Instruments (continued)
Federal Home Loan Bank Stock - The carrying value of capital stock of the
Federal Home Loan Bank approximates its fair value.
Demand Deposits - The fair value of NOW accounts and savings accounts was
the amount payable on demand at the reporting date.
Time Certificates - The fair value was determined using the discounted
cash flow method. The discount rate used was the rate currently offered on
similar products.
Federal Home Loan Bank advance - The fair value was determined using the
discounted cash flow method. The discount rate used was the rate currently
offered on similar products.
Loan Commitments - Fixed Rate - The estimated fair value of commitments to
originate fixed-rate loans is determined based on the difference between
current levels of interest rates and the committed rates.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date. Therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
Note 16 - Parent Company Only Condensed Financial Information
Beckley Bancorp, Inc. was organized to serve as the holding company for
Beckley Federal Savings Bank and began operations on July 7, 1994 in conjunction
with the Savings Bank's mutual-to-stock conversion and the Company's initial
public offering of common stock. The Company's (Parent company only) balance
sheets as of December 31, 1996 and 1995 and related statements of income and
cash flows for December 31, 1996 and 1995 and for the period from inception
(July 7, 1994) to December 31, 1994 are as follows:
BECKLEY BANCORP, INC.
BALANCE SHEETS
December 31, 1996 and 1995 1996 1995
=============================================================================
Assets
Cash and cash equivalents $ 120,341 $ 288,036
Investment in Beckley Federal Savings Bank 8,008,569 8,196,801
Loan to Beckley Federal Savings Bank 3,010,000 2,617,000
Loan to Savings Bank ESOP 153,289 184,818
Other 942 1,192
- -----------------------------------------------------------------------------
Total Assets $11,293,141 $11,287,847
=============================================================================
Liabilities and Stockholders' Equity
Other liabilities $ 3,945 $ 8,420
Income taxes payable 7,237 11,173
Stockholders' Equity 11,281,959 11,268,254
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $11,293,141 $11,287,847
=============================================================================
30
<PAGE>
BECKLEY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 16 - Parent Company Only Condensed Financial Information (continued)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and
Period From Inception (July 7, 1994) to
December 31, 1994 1996 1995 1994
====================================================================================
Income:
<S> <C> <C> <C>
Interest on loans $ 140,112 $ 139,626 $ 65,352
Dividends from subsidiary 358,880 241,778 xx
- -------------------------------------------------------------------------------------
498,992 381,404 65,352
- -------------------------------------------------------------------------------------
Professional fees and other expenses 62,259 75,518 28,828
- -------------------------------------------------------------------------------------
Income before income taxes and (excess
dividends) equity in undistributed earnings
of subsidiary 436,733 305,886 36,524
Provision for income taxes 31,171 27,194 13,491
- -------------------------------------------------------------------------------------
405,562 278,692 23,033
(Excess dividends) equity in undistributed
net income of subsidiary (130,044) 117,102 241,778
- -------------------------------------------------------------------------------------
Net Income $ 275,518 $ 395,794 $ 264,811
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and
Period From Inception (July 7, 1994) to
December 31, 1994 1996 1995 1994
=====================================================================================
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 275,518 $ 395,794 $ 264,811
Adjustments to reconcile net income to net
cash provided by operating activities:
Excess dividends (equity) in undistributed
net income of subsidiary 130,044 (117,102) (241,778)
Decrease (increase) in other assets 250 (1,192) xx
Increase in other liabilities (8,411) 4,318 15,275
Other (11,240) xx xx
- -------------------------------------------------------------------------------------
Net Cash Provided by Operations 386,161 281,818 38,308
- -------------------------------------------------------------------------------------
Cash Flows From (Used by) Investing Activities:
Payments received on loans 31,529 29,427 xx
Loans originated, net of payments (393,000) xx (2,617,000)
Purchase of Savings Bank subsidiary stock xx xx (2,799,636)
- -------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing
Activities (361,471) 29,427 (5,416,636)
- --------------------------------------------------------------------------------------
Cash Flows (Used by) From Financing Activities:
Proceeds from issuance of common stock for
Management Stock Bonus Plan xx 107,780 xx
Cash dividends paid (192,385) (137,688) xx
Proceeds from sale of stock - net xx xx 5,599,272
Purchase of stock by ESOP less payments xx xx (214,245)
- --------------------------------------------------------------------------------------
Net Cash (Used) Provided by Financing
Activities (192,385) (29,908) 5,385,027
- --------------------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (167,695) 281,337 6,699
Cash and cash equivalents, beginning of year 288,036 6,699 xx
======================================================================================
Cash and Cash Equivalents, End of Year $ 120,341 $ 288,036 $ 6,699
======================================================================================
Supplemental Disclosures:
Interest Paid $ xx $ xx $ 6,334
======================================================================================
Income Taxes Paid $ 34,857 $ 20,942 $ xx
======================================================================================
</TABLE>
31
<PAGE>
Quarterly Stock and Dividend Information
Since its issuance in July 1994, the Corporation's common stock has been
traded in the over-the-counter market. The following table reflects high and low
bids information as published by the National Quotation Bureau, Inc. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not represent actual transactions.
HIGH LOW
Jan. 1. 1995 - March 31, 1995 13 5/8 11
April 1, 1995 - June 30, 1995 14 1/2 12 1/2
July 1, 1995 - Sept. 30, 1995 14 1/2 12 1/2
Oct. 1, 1995 - Dec. 31, 1995 16 13 5/8
Jan. 1, 1996 - March 31, 1996 16 1/2 16
April 1, 1996 - June 30, 1996 16 1/2 16 1/2
July 1, 1996 - Sept, 30, 1996 17 16 1/2
Oct. 1, 1996 - Dec. 31, 1996 16 1/2 16 1/2
The number of stockholders of record of common stock as of March 15, 1997,
was approximately 259. This does not reflect the number of persons or entities
who held stock in nominee or "street" name through various brokerage firms. At
March 15, 1997, there were 601, 465 shares of common stock outstanding.
On January 14, 1997, the Board of Directors of the Corporation declared a
$0.14 per share regular semi-annual cash dividend and a $0.08 per share special
cash dividend payable on February 18th to stockholders of record as of January
31st. The Corporation expects to continue its policy of paying regular cash
dividends; however, further declarations of dividends by the Corporation's
Board of Directors will depend on a number of factors, including investment
opportunities available to the Corporation or the Savings Bank, capital
requirements, regulatory limitations, the Corporation's and the Savings Bank's
results of operations and financial condition, tax considerations, and general
economic conditions.
Because the Savings Bank meets its fully phased-in capital requirements,
it is permitted to pay dividends to the Corporation during any calendar year
equal to the greater of (1) 100% of its net income, plus an amount that would
reduce by one-half its "surplus capital ratio" (defined as the amount of capital
in excess of the fully phased-in requirement) at the beginning of the calendar
year, or (2) 75% of its net income over the most recent four-quarter period.
Under Delaware law, the Corporation may pay dividends to its stockholders in an
amount of its surplus (the amount of capital in excess of the par value of its
surplus.)
<PAGE>
[LOGO]
BECKLEY BANCORP, INC.
200 Main Street, P.O. Box 1069
Beckley, West Virginia 25802-1069
Telephone (304) 252-6201
Consent
[Mason & Bashaw, CPA's, A.C. letterhead]
INDEPENDENT ACCOUNTANTS' CONSENT
Board of Directors
Beckley Bancorp, Inc.
200 Main Street
Beckley, West Virginia 25801
We hereby consent to the incorporation by reference into the Forms S-8 of
Beckley Bancorp, Inc. (File Nos. 33-99954 and 333-11907) of our audit report
dated January 27, 1997 included in the Form 10-KSB of Beckley Bancorp, Inc. for
the fiscal year ended December 31, 1996.
/s/ Mason & Bashaw
Mason & Bashaw, CPA's, A.C.
March 27, 1997
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