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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2000 Commission file number: 0-16761
Highlands Bankshares, Inc.
(Exact name of registrant as specified in its charter)
West Virginia 55-0650743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 929, Petersburg, West Virginia 26847
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (304) 257-4111
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $5 Par
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
....
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-K or any amendment to this Form 10-K. [X]
Issuer's revenues for its most recent fiscal year: $19,470,393
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of February 28, 2001 - $22,189,041
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of March 1, 2001 - 501,898
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement of Highlands Bankshares, Inc. filed via Form DEF 14A on
March 20, 2001.
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on pages 47-48.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES NO X
2
FORM 10-K INDEX
Page
Part I
Item 1. Description of Business 3
General
Services Offered by the Banks
Employees
Competition
Regulation and Supervision
Item 2. Description of Property 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Common Equity and
Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation 6
Item 7. Financial Statements 23
Item 8. Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure 47
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act 47
Item 10. Executive Compensation 47
Item 11. Security Ownership of Certain Beneficial Owners and
Management 47
Item 12. Certain Relationships and Related Transactions 47
Part IV
Item 13. Exhibits and Reports on Form 8-K 47
Signatures 49
3
Part I
Item 1. Description of Business
General
Highlands Bankshares, Inc. (hereinafter referred to as "Highlands"),
incorporated under the laws of West Virginia in 1985, is a multi-bank holding
company subject to the provisions of the Bank Holding Company Act of 1956, as
amended, and owns 100% of the outstanding stock of its subsidiary banks, The
Grant County Bank and Capon Valley Bank (hereinafter referred to as the
"Banks"), its life insurance subsidiary, HBI Life Insurance Company (hereinafter
referred to as "HBI Life") and its trust subsidiary, Highlands Bankshares Trust
Company (hereinafter referred to as "HBTC").
The Grant County Bank was chartered on August 6, 1902, and Capon Valley Bank
was chartered on July 1, 1918. Both are state banks chartered under the laws of
the State of West Virginia. HBI Life was chartered in April 1988 under the laws
of the State of Arizona. HBTC was chartered in December 2000 under the laws of
the state of West Virginia.
Services Offered by the Banks
The Banks offer all services normally offered by a full service commercial
bank, including commercial and individual demand and time deposit accounts,
commercial and individual loans, drive-in banking services and automated teller
machines. No material portion of the banks' deposits have been obtained from a
single or small group of customers and the loss of the deposits of any one
customer or of a small group of customers would not have a material adverse
effect on the business of the banks. Credit life accident and health insurance
are sold to customers of the subsidiary banks through HBI Life. Trust services
are offered through HBTC.
Employees
As of December 31, 2000, The Grant County Bank had 55 full time equivalent
employees and Capon Valley Bank had 36 full time equivalent employees. No person
is employed by Highlands or HBI Life on a full time basis. HBTC uses employees
of the Banks and reimburses them for the cost of these services.
Competition
The banks' primary trade area is generally defined as Grant County, Hardy
County, Mineral County, Randolph County and the northern part of Pendleton
County. This area includes the cities of Petersburg, Wardensville, Moorefield
and Keyser and several rural towns. The banks compete with four state chartered
banks and six national banks. No financial institution has been chartered in the
area within the last five years although branches of state and nationally
chartered banks have located in this area within this time period. Competition
for new loans and deposits in the banks' service area is quite intense and all
banks have been forced to pay rates on deposits which exceed the national
averages.
The banks' secondary trade area includes portions of Hampshire County in
West Virginia and Frederick County in Virginia. In addition, the banks compete
with money market mutual funds and investment brokerage firms for deposits in
their service area.
Regulation and Supervision
Highlands is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934. These include, but are not limited to, the
filing of annual, quarterly and other current reports with the Securities and
Exchange Commission.
4
Regulation and Supervision (Continued)
Highlands, as a bank holding company, is subject to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Act"). It is registered as
such and is supervised by the Federal Reserve Board. The Act requires Highlands
to secure the prior approval of the Federal Reserve Board before Highlands
acquires ownership or control of more than five percent of the voting shares, or
substantially all of the assets of any institution, including another bank.
As a bank holding company, Highlands is required to file with the Federal
Reserve Board an annual report and such additional information as it may require
pursuant to the Act. The Federal Reserve Board may also conduct examinations of
Highlands and any or all of its subsidiaries. Under Section 106 of the 1970
Amendments to the Act and the regulations of the Federal Reserve Board, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with an extension of credit, provision of
credit, sale, or lease of property or furnishing of services.
Federal Reserve Bank regulations permit bank holding companies to engage in
nonbanking activities closely related to banking or to managing or controlling
banks. These activities include the making or servicing of loans, trust
services, performing certain data processing services, and certain leasing and
insurance agency activities. HBI Life acts as reinsurer of the credit life
insurance coverage sold by the Banks to bank customers. HBTC provides trust
services to customers of the Banks. Approval of the Federal Reserve Board is
necessary to engage in any of these activities or to acquire corporations
engaging in these activities.
The operations of the Banks are subject to federal and state statutes which
apply to state chartered banks. Bank operations are also subject to the
regulations of the Federal Deposit Insurance Corporation (the "FDIC"), which
insures the banks' deposits. In addition, the Capon Valley Bank is a member of
the Federal Reserve Bank System and is subject to the regulations of the Federal
Reserve Bank Board.
The supervisory authorities regularly examine such areas as reserves, loans,
investments, management practices, and other aspects of the banks' operations.
These examinations are designed primarily for the protection of depositors. In
addition to these regular examinations, the banks must furnish the various
regulatory authorities quarterly reports containing a full and accurate
statement of its affairs.
The operations of the insurance subsidiary are subject to the oversight and
review of State of Arizona Department of Insurance.
The operations of the trust company are subject to the oversight and review
of the State of West Virginia and the Federal Reserve Bank.
Item 2. Description of Properties
The Grant County Bank's main office is located on Main Street in Petersburg,
West Virginia. In July 2000, the Bank acquired a full service branch in Harman
through the purchase of the Stockmans' Bank of Harman. This location will
primarily serve Randolph County. The Bank also has branch facilities in
Moorefield, Keyser and Riverton, West Virginia which provide banking services in
Hardy County, Mineral County, and northwest Pendleton County, respectively. The
Riverton branch building is leased while all other locations are owned by the
Bank.
Capon Valley Bank has its main office in Wardensville, West Virginia and
branch offices located in Moorefield and Baker, West Virginia. The Wardensville
location was substantially renovated and expanded in 2000 to enhance customer
service. Capon's offices serve mainly Hardy County and Hampshire County, West
Virginia. All facilities include state-of-the-art drive in and automated teller
operations. All facilities are owned by the Bank and considered adequate for
current operations.
5
Item 3. Legal Proceedings
Management is not aware of any material pending or threatened litigation in
which Highlands or its subsidiaries may be involved as a defendant. In the
normal course of business, the banks periodically must initiate suits against
borrowers as a final course of action in collecting past due loans.
Item 4. Submission of Matters to a Vote of Security Holders
Highlands has not submitted any matters to the vote of security holders for
the quarter ending December 31, 2000.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company had approximately 850 stockholders of record as of March 1,
2001. The Company's stock is not traded on any national or regional stock
exchange although brokers in Cumberland, Maryland or Winchester and
Harrisonburg, Virginia may occasionally initiate or be a participant in a trade.
Terms of an exchange between individual parties may not be known to the Company.
The following outlines the dividends paid and market prices of the Company's
stock based on prices disclosed to management. Such prices may not include
retail mark-ups, mark-downs or commissions.
Dividends Market Price Range
2000 Per Share High Low
---- --------- ---- ---
First Quarter $.31 $59.00 $57.00
Second Quarter .31 58.50 50.13
Third Quarter .31 55.00 51.00
Fourth Quarter .31 51.00 48.00
1999
First Quarter $.29 $62.50 $62.50
Second Quarter .29 59.00 59.00
Third Quarter .29 60.00 57.00
Fourth Quarter .29 60.00 58.00
1998
First Quarter $.27 $63.00 $50.00
Second Quarter .27 62.75 58.25
Third Quarter .27 69.00 63.00
Fourth Quarter .27 63.25 62.25
6
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's 2000 net income of $2,380,911 represents a 2.39% increase in
net income and earnings per share compared to 1999. This represented a return on
average equity of 9.40% for 2000 compared to 9.94% for 1999. Returns on average
assets for 2000 and 1999 were 1.03% and 1.08%, respectively. The increase in
earnings was due to an increase in the volume of earning assets, a stable net
interest margin and increased service charges on deposit accounts.
The tax equivalent interest income increased by $1,926,000 in 2000 to
$18,305,000 as compared to 1999. A 7.11% increase in the level of earning assets
and an increase in yields resulted in the earnings improvement. A 13.48%
increase in average loans outstanding was the result of a good local economy
that was spread across all types of loans. The increase was also partly
attributable to the acquisition of the branch at Harman. The funding of the
asset growth was from deposits of local customers (primarily time deposits) and
declines in securities available for sale. Also, contributing to the asset
funding was approximately $9.0 million in deposits acquired in the Harman
purchase.
Noninterest income increased 23.03% in 2000 compared to 1999 due to
increases in service charge income and profits from the sale of bonds acquired
in the Harman acquisition. Noninterest expenses increased 12.15% in 2000 due
mainly to the higher personnel and equipment expenses.
Net Interest Margin
2000 compared to 1999
The Company's net interest margin on a tax equivalent basis was $9,515,000
for 2000 compared to $8,716,000 for 1999. The increase was due to an increase in
average earning assets (7.11%) and a consistent spread (the difference in rates
earned on assets and paid on liabilities) of 3.69% in 2000 compared to 3.70% in
1999. Average loans outstanding grew by 13.48% from 1999 to 2000. This growth
reflected good local and national economic conditions, stable interest rates and
additional banking facilities acquired by an acquisition. The overall cost of
funds reflected the high level of competition for deposits in the Company's
service area which has traditionally paid higher rates on deposits than larger,
statewide financial institutions. The deposit increase was the result of growth
in the area of time deposit accounts and were obtained primarily from customers
in the immediate service areas.
Loans outstanding at December 31, 2000 increased 13.60% over amounts at
December 31, 1999. The loan increase was the result of acquiring a branch in a
new market area and continued efforts to increase lending in existing markets.
Loan growth was funded primarily by deposit growth and a decline in the level of
investments. The increase in the dollar amount of tax equivalent net interest
margin for 2000 over the 1999 amounts is the result of an annualized growth in
earning assets of 7.11%. The Company anticipates its net interest margin
remaining stable in view of recent declines in interest rates targeted by the
Federal Reserve Bank. Rates paid on deposits are expected to decline over the
next twelve months as the result of recent Federal Reserve Bank's rate cuts.
Returns on most loans have repricing opportunities within the next twelve months
and the Company should be able to maintain or slightly improve its net interest
margin in a declining rate environment.
A summary of the net interest margin analysis is shown as Table II on page
20.
7
Net Interest Margin (Continued)
1999 Compared to 1998
The Company's net interest margin on a tax equivalent basis was $8,716,000
for 1999 compared to $8,144,000 for 1998. The increase was due to an increase in
average earning assets (6.95%) and an increased spread (the difference in rates
earned on assets and paid on liabilities) from 3.60% in 1998 to 3.70% in 1999.
Average loans outstanding grew by 8.31% from 1998 to 1999. This growth reflected
good local and national economic conditions, slightly increasing interest rates
and expanded banking facilities. The deposit increase represented growth in
money market savings and time deposit accounts and was obtained primarily from
customers in the immediate service areas.
Loans outstanding at December 31, 1999 increased 12.29% over amounts at
December 31, 1998. The loan increase was the result of opening branches in new
market areas and continued efforts to increase lending in existing markets. Loan
growth was funded primarily by deposit growth with declines in the level of
security investments. The net interest margin for 1999 and 1998 was 4.35% and
was the result of declines in the rates of all types of earning assets and all
types of deposit accounts.
A summary of the net interest margin analysis is shown as Table II on Page
20.
Provision for Loan Losses
The Company's provision for loan losses were $500,000 for 2000, $320,000 for
1999 and $355,000 for 1998. Net loan losses were $412,000 in 2000 compared to
$357,000 in 1999 and $369,000 in 1998. The Company's three year charge off rate
of .24% of average loans outstanding compares closely with its peer group. The
2000 charge off percentage of .23% of average loans was slightly above the peer
group average for the year and reflects some charged off loans acquired from
Harman. (See the following discussion relating to the allowance for loan
losses.)
Noninterest Income
2000 Compared to 1999
Overall noninterest income increased in 2000 by 23.03% when compared with
1999 operations. Increases in service charge income was the result of volume
increases and increased rates for not sufficient funds (NSF) checks. Other
operating income declined due to a $165,000 gain from the demutualization of an
insurance company in 1999 which was not repeated in 2000. The Company did
recognize greater income from investments in insurance contracts due to a
complete year of investing in these assets. Gains of $104,000 from the sale of
investments in 2000 compared to losses from the sale of investments in 1999 of
$65,000 added $169,000 to total noninterest income.
1999 Compared to 1998
Noninterest income for 1999 increased 39.70% from 1998. Increases in service
charge income of 20.56% and other operating income of 96.02% were the result of
an increase in volume of transactions and the gain from an insurance company
demutualization, respectively. The Company also recognized greater income from
investments in insurance contracts due to a larger volume of such investments.
Losses on security transactions increased from $2,000 in 1998 to $64,000 in 1999
as the Company sold investments in mutual funds that were not meeting
expectations.
8
Noninterest Expenses
2000 Compared to 1999
Total noninterest expenses increased 12.15% in 2000 when compared with 1999
operations. Salaries and benefits increased 12.34% due to the increase in staff
at the new branch, merit and inflationary raises and higher benefit costs.
Average full time equivalent employees increased 6.67% in 2000 due mainly to
staffing the new branches in Moorefield and Harman. The costs of occupancy and
equipment increased 14.78% due to a full year of costs in the Moorefield branch
and depreciation associated with the new facility and equipment upgrades. Data
processing expenses increased by 3.45% due to general asset growth and expanded
locations. Other operating expenses increased 13.22% for all of the reasons
cited above. Noninterest expense as a percentage of average assets was 2.86% in
2000 compared to 2.74% in 1999 and 2.69% in 1998. These ratios compare favorably
to the Company's peer group. The overall increase in noninterest expenses is a
reflection of additional locations which generally take one to three years to
become profitable.
1999 Compared to 1998
Overall, noninterest expense increased 9.96% in 1999 when compared to 1998.
Personnel expenses increased 10.76% as the result of additional locations.
Occupancy and equipment expenses increased 8.93% as the result of asset growth
and inflation year 2000 preparedness. Data processing expenses increased by
3.65% as a result of volume growth. Other noninterest expenses increased by
10.91% due to asset growth and costs in preparing for the year 2000.
Financial Condition
Loan Portfolio
The Company is an active residential mortgage and construction lender and
generally extends commercial loans to small and medium sized businesses within
its primary service area. The Company's commercial lending activity extends
across its primary service areas of Grant, Hardy, Hampshire, Mineral, Randolph
and northern Pendleton counties. Consistent with its focus on providing
community-based financial services, the Company does not attempt to diversify
its loan portfolio geographically by making significant amounts of loans to
borrowers outside of its primary service area.
The principal economic risk associated with each of the categories of loans
in the Company's portfolio is the creditworthiness of its borrowers. Within each
category, such risk is increased or decreased depending on prevailing economic
conditions. The risk associated with the real estate mortgage loans and
installment loans to individuals varies based upon employment levels, consumer
confidence, fluctuations in value of residential real estate and other
conditions that affect the ability of consumers to repay indebtedness. The risk
associated with commercial, financial and agricultural loans varies based upon
the strength and activity of the local economies of the Company's market areas.
The risk associated with real estate construction loans varies based upon the
supply of and demand for the type of real estate under construction.
Loans outstanding increased $22,654,000 or 13.60% in 2000. All loan types
recognized significant growth. The loan to deposit ratio was 87.39% at December
31, 2000 compared to 86.62% at December 31, 1999. Management believes this level
of lending activity is satisfactory to generate adequate earnings without undue
credit risk. Loan demand is expected to remain satisfactory in the near future
with any growth a function of local and national economic conditions.
9
Financial Condition (Continued)
Loan Portfolio (Continued)
The following table summarizes the Company's loan portfolio, net of
unearned income:
At December 31,
--------------------------
2000 1999 1998
---- ---- ----
(In Thousands of Dollars)
Real Estate:
Mortgage $ 101,890 $ 93,391 $ 83,446
Construction 4,061 3,296 2,969
Commercial 37,681 31,567 30,718
Installment 46,191 39,994 33,464
-------- -------- --------
189,823 168,248 150,597
Less unearned discount (555) (1,634) (2,213)
-------- -------- --------
189,268 166,614 148,384
Allowance for loan losses (1,493) (1,318) (1,355)
-------- -------- --------
Loans, net $ 187,775 $ 165,296 $ 147,029
======== ======== ========
The following table shows the maturity of loans outstanding (in thousands
of dollars) as of December 31, 2000, 1999 and 1998.
Maturity Range 2000 1999 1998
-------------- ---- ---- ----
Predetermined Rates:
0 - 12 months $ 105,054 $ 91,080 $ 73,878
13 - 60 months 75,918 61,193 53,765
More than 60 months 8,264 14,147 20,702
Nonaccrual Loans 32 194 39
-------- -------- --------
Total Loans $ 189,268 $ 166,614 $ 148,384
======== ======== ========
The following table shows the Company's loan maturity distribution (in
thousands of dollars) as of December 31, 2000:
Maturity Range
Less Than 1-5 Over
Loan Type 1 Year Years 5 Years Total
--------- ------- ----- ------- -----
Commercial and
Agricultural Loans $ 29,333 $ 5,039 $ 3,309 $ 37,681
Real Estate - mortgage 63,383 34,895 3,612 101,890
Real Estate - construction 4,061 4,061
Consumer - installment 8,277 36,016 1,343 45,636
-------- -------- -------- --------
Total $ 105,054 $ 75,950 $ 8,264 $ 189,268
======== ======== ======== ========
10
Financial Condition (Continued)
Loan Portfolio (Continued)
Nonperforming loans include nonaccrual loans, loans 90 days or more past
due and restructured loans. Nonaccrual loans are loans on which interest
accruals have been discontinued. Loans which reach nonaccrual status may not be
restored to accrual status until all delinquent principal and interest has been
paid or the loan becomes both well secured and in the process of collection.
Restructured loans are loans with respect to which a borrower has been granted a
concession on the interest rate or the original repayment terms because of
financial difficulties. Nonperforming loans do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources. Nonperforming
loans are listed in the table below.
Real estate acquired through foreclosure was $111,000 at December 31, 2000,
$121,000 at December 31, 1999 and $95,000 at December 31, 1998. All foreclosed
property held at December 31, 2000 was in the Company's primary service area.
The Company's practice is to value real estate acquired through foreclosure at
the lower of (i) an independent current appraisal or market analysis less
anticipated costs of disposal, or (ii) the existing loan balance. The Company is
actively marketing all foreclosed real estate and does not anticipate material
write-downs in value before disposition.
Nonperforming loans increased 25.69% at December 31, 2000 compared to 1999.
Nonaccrual loans declined as the result of a few workout situations. Loans 90
and more days past due increased 38.19% compared to a 13.60% increase in total
loans outstanding. The increase in delinquent loans includes a large amount of
loans acquired in the Harman acquisition that were nonperforming when acquired.
Management does not anticipate any material losses from the current level of
nonperforming assets.
The following table summarizes the nonperforming loans:
At December 31,
-----------------------
2000 1999 1998
---- ---- ----
(Dollars in Thousands)
Loans accounted for on a
nonaccrual basis $ 32 $ 194 $ 39
------ ----- ------
Loans contractually past due
90 days or more as to interest
or principal payments (not
included in nonaccrual loans above)
Commercial 60 89 41
Real estate 1,984 1,465 1,339
Installments 297 140 142
------ ----- ------
Total Delinquent Loans 2,341 1,694 1,522
------ ----- ------
Total Nonperforming Loans $ 2,373 $1,888 $ 1,561
====== ===== ======
11
Financial Condition (Continued)
Loan Portfolio (Continued)
An inherent risk in the lending of money is that the borrower will not be
able to repay the loan under the terms of the original agreement. The allowance
for loan losses (see subsequent section) provides for this risk and is reviewed
periodically for adequacy. This review also considers concentrations of loans in
terms of geography, business type or level of risk. While lending is
geographically diversified within the service area, the Company does have some
concentration of loans in the area of agriculture (primarily poultry farming),
timber and related industries. Management recognizes these concentrations and
considers them when structuring its loan portfolio. As of December 31, 2000,
management is not aware of any significant potential problem loans for which the
debtor is currently meeting their obligations as stated in the loan agreement
but which may change in future periods.
As of December 31, 2000, the Company did not have any potential problem
loans as defined in Guide 3 that would require disclosure.
Allowance for Loan Losses
Management has analyzed the potential risk of loss on the Company's loan
portfolio given the loan balances and the value of the underlying collateral and
has recognized losses where appropriate. Nonperforming loans are closely
monitored on an ongoing basis as part of the Company's loan review process.
Management reviews the loan loss allowance at the end of each quarter. Based
primarily on the Company's loan classification system, which classifies problem
credits as substandard, doubtful or loss, additional provisions for losses are
made monthly. The ratio of the allowance for loan losses to total loans
outstanding was .79% at December 31, 2000 and December 31, 1999 compared to .91%
at December 31, 1998. At December 31, 2000, the ratio of the allowance for loan
losses to nonperforming loans was 62.92% compared to 69.83% at December 31, 1999
and 86.83% at December 31, 1998.
Charge offs for 2000 were .23% of average loans outstanding and about the
same as the Company's peer group over the last three years. Losses on commercial
lending were higher in 2000 due to an individual loss involving the inability of
a guarantor to pay the indebtedness. The Company anticipates some recoveries due
to pending legal actions but reflects these only when the recovery is actually
realized.
Management continues to monitor the economic health of the poultry
industry. The Company has direct loans to poultry growers and the industry is a
large employer in the Company's trade area. Operating results for the industry
have improved due to moderating grain prices and better turkey pricing. However,
the industry has not fully recovered due to a decline in chicken prices and
profitability in this industry is still quite volatile. The area's large
employer in the poultry industry, WLR Foods, Inc., was recently sold to a Texas
poultry producer, Pilgrim's Pride, Inc. While some management jobs may be
eliminated, the overall effect on the poultry industry of this event should be
negligible.
12
Allowance for Loan Losses (Continued)
The following table summarizes changes in the allowance for loan losses:
Year Ending December 31,
-----------------------------
2000 1999 1998
---- ---- ----
(In Thousands of Dollars)
Balance at beginning of period $1,318 $1,355 $1,370
----- ----- -----
Allowance relating to loans acquired
in purchase 87
----- ----- -----
Loan Losses:
Commercial and agricultural 172 107 135
Real estate - mortgage 128 87 53
Installment loans to individuals 215 254 289
----- ----- -----
Total loan losses 515 448 477
----- ----- -----
Recoveries:
Commercial and agricultural 2 16 6
Real estate - mortgage 30 1 1
Installment loans to individuals 71 74 100
----- ----- -----
Total recoveries 103 91 107
----- ----- -----
Net loan losses 412 357 370
----- ----- -----
Additions charged to operations 500 320 355
----- ----- -----
Balance at end of period $1,493 $1,318 $1,355
===== ===== =====
The Company has allocated the allowance for loan losses according to the
amounts deemed to be reasonably necessary to provide for the possibility of
losses incurred within each of the above categories of loans. The allocation of
the allowance as shown in the table below should not be interpreted as an
indication that loan losses in future years will occur in the same proportions
or that the allocation indicates future loan loss trends. Furthermore, the
portion allocated to each loan category is not the total amount available for
future losses that might occur within such categories since the total allowance
is a general allowance applicable to the entire portfolio.
The following table shows the balance and percentage of the Company's
allowance for loan losses allocated to each major category of loans:
At December 31,
-------------------------------------
2000 1999 1998
--------------- ---------------- ---------------
Percent Percent Percent
of of of
Loans Loans Loans
Percent in Percent in Percent in
of Category of Category of Category
Allow- to Total Allow- to Total Allow- to Total
Amount ance Loans Amount ance Loans Amount ance Loans
------ ------------- ------------ ------- ------ ------------
(Dollars in Thousands)
Commercial $ 507 34% 20% $ 395 30% 19% $ 379 28% 23%
Real
estate
mortgage 239 16 56 211 16 58 434 32 56
Installment 598 40 24 580 44 23 406 30 21
Unallocated 149 10 132 10 136 10
----- ---- ---- ----- --- --- ----- --- --
$1,493 100% 100% $1,318 100% 100% $1,355 100% 100%
===== === === ===== === === ===== === ===
13
Allowance for Loan Losses (Continued)
For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into consideration all
factors connected with the collectibility of the existing portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and value of the portfolio, industry standards and other relevant
factors. Specific factors considered by management in determining the amounts
charged to operations include internally generated loan review reports, previous
loan loss experience with the borrower, the status of past due interest and
principal payments on the loan, the quality of financial information supplied by
the borrower and the general financial condition of the borrower.
The provision for loan losses charged to operations was $500,000 for 2000,
$320,000 for 1999 and $355,000 for 1998. In the opinion of management, the
provision charged to operations over this three year period has been sufficient
to maintain an adequate allowance for loan losses.
Securities
The Company's securities portfolio serves several purposes. Portions of the
portfolio are used to secure certain public and trust deposits. The remaining
portfolio is held as investments or used to assist the Company in liquidity and
asset liability management. During 2000, total securities decreased to $25.8
million or 10.39% of total assets at December 31, 2000. Total securities were
$29.8 million or 13.52% of total assets at December 31, 1999.
The securities portfolio consists of three components: securities held to
maturity, securities available for sale and restricted securities. Securities
are classified as held to maturity when management has the intent and the
Company has the ability at the time of purchase to hold the securities to
maturity. Held to maturity securities are carried at cost, adjusted for
amortization of premiums and accretion of discounts. Securities to be held for
indefinite periods of time are classified as available for sale and accounted
for at market value. Securities available for sale include securities that may
be sold in response to changes in market interest rates, changes in the
security's prepayment risk, increases in loan demand, general liquidity needs
and other similar factors. Restricted securities are those investments purchased
as a requirement of membership in certain loan banks and cannot be transferred
without the issuer's permission. The Company's purchases of securities have
generally been limited to securities of high credit quality with short to medium
term maturities.
The Company identifies at the time of acquisition those securities that are
available for sale. These securities are valued at their market value with any
difference in market value and amortized cost shown as an adjustment in
stockholders' equity. Changes within the year in market values are reflected as
changes in stockholders' equity, net of the deferred tax effect. As of December
31, 2000, the fair value of the securities available for sale exceeded their
cost basis by $62,000 ($39,000 after the related tax effect).
14
Securities (Continued)
The following table summarizes the carrying value of the Company's
securities at the dates indicated:
Held to Maturity Available for Sale
Carrying Value Carrying Value
------------------------- ----------------
December 31, December 31,
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(In Thousands of Dollars)(In Thousands of Dollars)
U.S. treasuries,
agencies
and corporations $ 88 $ $ $18,719 $21,160 $22,129
Obligations of
states and
political
subdivisions 2,131 2,837 2,987 789 243 262
Mortgage-backed
securities 9 340 517 3,275 4,339 6,821
------ ------ ----- ------ ------ ------
Total Debt
Securities 2,228 3,177 3,504 22,783 25,742 29,212
Other securities 52 151 546
------ ------ ----- ------ ------ ------
Total $ 2,228 $ 3,177 $3,504 $22,835 $25,893 $29,758
====== ====== ===== ====== ====== ======
The carrying amount and estimated market value of debt securities (in
thousands of dollars) at December 31, 2000 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Securities Held to Maturity Amortized Fair Average
--------------------------- Cost Value Yield
Due in one year or less $ 531 $ 532 6.18%
Due after one year through
five years 1,108 1,104 7.01%
Due after five years through
ten years 500 510 7.01%
Due after ten years 89 88 5.20%
-------- --------- -----
Total Held to Maturity $ 2,228 $ 2,234 6.74%
======== ========= =====
Securities Available for Sale Amortized Fair Average
----------------------------- Cost Value Yield
Due in one year or less $ 7,855 $ 7,838 5.47%
Due after one year through
five years 10,874 10,929 6.31%
Due after five years through
ten years 2,800 2,819 6.81%
Due after ten years 1,187 1,197 7.77%
-------- --------- -----
Total Fixed Rate Securities 22,716 22,783 6.16%
Equities 58 52 5.18%
-------- --------- -----
Total Available for Sale $ 22,774 $ 22,835 6.16%
======== ========= =====
Yields on tax exempt securities are stated at tax equivalent yields.
Management has generally kept the maturities of investments relatively
short providing for flexibility in investing. Such a philosophy allows the
Company to better match deposit maturities with investment maturities and thus
react more quickly to interest rate changes.
15
Deposits
The Company's predominant source of funds is local deposits. The Company's
deposit base is comprised of demand deposits, savings and money market accounts
and other time deposits. The Company's deposits are provided by individuals and
businesses located within the communities served.
The average balance of interest bearing deposits increased by 5.32% in 2000
over average levels in 1999. The average rate paid on deposits increased to
4.82% in 2000 from 4.46% in 1999 and 4.88% in 1998. The majority of the
Company's deposits are higher yielding time deposits as most of its customers
are individuals who seek higher yields than savings accounts or don't wish to
accept the risks of the stock market.
The Company does not actively solicit large certificates of deposit (those
more than $100,000) due to the unstable nature of these deposits. Increases in
2000 are the result of overall deposit growth and higher than average rates
offered by the Company. A summary of the maturity of large deposits is as
follows:
December 31,
--------------------
Maturity Range 2000 1999 1998
-------------- ---- ---- ----
(In Thousands of Dollars)
Three months or less $ 4,172 $ 6,341 $ 5,883
Four to twelve months 14,336 12,342 11,391
One year to five years 16,376 9,846 8,449
------- ------- --------
Total $ 34,884 $ 28,529 $ 25,723
======= ======= ========
Borrowed Money
The Company occasionally borrows funds from the Federal Home Loan Bank to
reduce market rate risks. Such borrowings have fixed repayment terms and are
amortized over a ten to twenty year life. Borrowings from this institution
allows the banks to offer long-term, fixed rate loans to their customers and
match the interest rate exposure of the receivable and the liability. The
Company had additional borrowings in 2000 of $1,732,000 and repayments within
the year of $290,000.
Capital Resources
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance and changing competitive
conditions and economic forces. The Company seeks to maintain a strong capital
base to support its growth and expansion activities, to provide stability to
current operations and to promote public confidence.
The Company's capital position continues to exceed regulatory minimums. The
primary indicators relied on by the Federal Reserve Board and other bank
regulators in measuring strength of capital position are the Tier 1 Capital,
Total Capital and Leverage ratios. Tier 1 Capital consists of common
stockholders' equity. Total Capital consists of Tier 1 Capital and a portion of
the allowance for loan losses. Risk-based capital ratios are calculated with
reference to risk-weighted assets which consist of both on and off-balance sheet
risks.
The following table shows risk-based capital ratios and stockholders'
equity to total assets:
Regulatory December 31,
Minimum 2000 1999
----------- ---- ----
Capital Ratios
Risk-based capital to risk-weighted assets
Tier 1 8.00% 15.17% 16.60%
Total 4.00% 16.03% 17.35%
Stockholders' equity to total assets 5.00% 10.57% 10.99%
16
Capital Resources (Continued)
The capital management function is an ongoing process. Central to this
process is internal equity generation accomplished by earnings retention. During
2000, 1999, and 1998, total stockholders' equity increased by $2,044,000,
$1,378,000 and $1,550,000, respectively, as a result of earnings retention and
changes in the unrealized gains (losses) on securities available for sale. The
return on average equity was 9.40% in 2000 compared to 9.94% for 1999 and 9.12%
for 1998. Total cash dividends declared represent 26.14% of net income for 2000
compared to 25.04% of net income for 1999 and 26.94% for 1998. Book value per
share was $52.34 at December 31, 2000 compared to $48.26 at December 31, 1999
and $45.52 at December 31, 1998.
The Company's principal source of cash income is dividend payments from the
Banks and insurance subsidiary. Certain limitations exist under applicable law
and regulation by regulatory agencies regarding dividend payments to a parent by
its subsidiaries. As of January 1, 2001, the Banks had $3,441,000 of retained
earnings available for distribution to the Company as dividends without prior
regulatory approval.
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity is the ability to meet present and future financial
obligations through either the sale or maturity of existing assets or the
acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its
depositors' requirements and meet its customers' credit needs.
Additional sources of liquidity available to the Company include, but are
not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also maintains lines of credit with
correspondent financial institutions, the Federal Reserve Bank of Richmond and
the Federal Home Loan Bank of Pittsburgh. In the past, growth in deposits and
proceeds from the maturity of investment securities have been sufficient to fund
the net increase in loans.
The investing activity saw a net increase in loans of $17,279,000, an
increase in interest bearing deposits of $3,925,000 and an increase in fed funds
sold of $2,737,000. New equipment and facility additions were $1,288,000 in 2000
compared with $1,338,000 in 1999. The net cost of the branch acquisition was
$1,220,000 after reducing the purchase price by the cash owned by the acquired
institution. Funding these investments was an increase in deposits of
$15,418,000, a decline in investments of $6,662,000 and retained operating
income of $1,759,000.
In the year ending December 31, 2000, cash and due from banks decreased
$250,000 as cash provided by operations and financing activities was less than
cash used in investing activities. The Banks increased currency reserves at all
branches at the end of 1999 in anticipation of larger cash requirements
resulting from the year 2000 changeover. Cash provided by operations consists
primarily of earnings from operations and noncash expenses such as the provision
for loan losses, deferred income taxes and depreciation. The dividends paid of
$622,000 in 2000 was an increase of 6.90 percent over 1999 amounts.
17
Liquidity and Interest Rate Sensitivity (Continued)
The Company is not aware of any trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations. The Company is not aware of any
proposals from any regulatory authority which, if implemented, would have such
an effect.
Interest Rate Sensitivity. In conjunction with maintaining a satisfactory
level of liquidity, management must also control the degree of interest rate
risk assumed on the balance sheet. Managing this risk involves regular
monitoring of the interest sensitive assets relative to interest sensitive
liabilities over specific time intervals.
At December 31, 2000, the Company had a neutral gap position as of twelve
months into the future. This position allows the Company to react quickly to
rate changes by the Federal Reserve Bank. The Company expects a decrease in the
overall cost of money in 2000 due to the maturity of certificates issued at
higher rates and a slight decrease in other deposit rates.
With the largest amount of interest sensitive assets and liabilities
repricing within one year, the Company monitors this position closely. Early
withdrawal of deposits, prepayments of loans and loan delinquencies are some of
the factors that could affect actual versus expected cash flows. In addition,
changes in rates on interest sensitive assets and liabilities may not be equal,
which could result in a change in the net interest margin. While the Company
does not match each of its interest sensitive assets against specific interest
sensitive liabilities, it does periodically review its cumulative position of
interest sensitive assets and liabilities.
The majority of the Company's commercial and real estate loans are made
with repricing frequencies of three months to three years. For this reason, 80%
of all loans will reprice within three years of December 31, 2000. Installment
loans generally have a fixed rate of interest but have limited amortization
periods. These loans have an average life to maturity of less than two years.
Management believes that its philosophy of requiring loan repricing within a
three to five year period to be the most prudent approach to asset/liability
management.
In the area of investments, the Company employs a management technique
known as "laddering" to minimize interest rate exposures and provide a constant
flow of maturities subject to repricing at current market rates. To assist in
the management of investments, the Company employs an independent investment
counsel that advises it in planning and risk diversification. The Company
utilizes many forms of investments with a significant use of mortgage-backed
securities issued by federally chartered institutions. The Company does not
employ the use of derivatives in its approach to controlling market risk.
Although the majority of its investments are classified as available for sale,
the Company rarely sells securities except in unusual circumstances.
Table IV (page 22) shows the maturity of liabilities and assets in future
periods. Table III (page 21) shows the effects of rate and volume changes on the
net interest margin for the past three year period.
18
Effects of Inflation
Inflation significantly affects industries having high levels of property,
plant and equipment or inventories. Although the Company is not significantly
affected in these areas, inflation does have an impact on the growth of assets.
As assets grow rapidly, it becomes necessary to increase equity capital at
proportionate levels to maintain the appropriate equity to asset ratios.
Traditionally, the Company's earnings and high capital retention levels have
enabled the Company to meet these needs.
The Company's reported earnings results have been affected by inflation,
but isolating the effect is difficult. The different types of income and expense
are affected in various ways. Interest rates are affected by inflation, but the
timing and magnitude of the changes may not coincide with changes in the
consumer price index. Management actively monitors interest rate sensitivity, as
illustrated by the Gap Analysis (Table IV, page 22) in order to minimize the
effects of inflationary trends on interest rates. Other areas of noninterest
expenses may be more directly affected by inflation.
Year 2000 Discussion
The Company and its subsidiary banks began preparing for the year 2000
changeover in 1997. Plans were developed to update equipment and software and
contingency plans were instituted to address problems that may have occurred due
to suppliers inability to perform as expected. Some of the equipment purchases
replaced outdated property and would have been made in the normal course of
business. All phases of the Company's major operations were addressed and the
plans were heavily reviewed by federal and state regulators. The result of this
effort was that all aspects of the Bank's operations performed without major
interruption in 2000 and entering the new millennium had a negligible impact on
customer service, correspondent banking or profitability.
Securities and Exchange Commission WEB Site
The Securities and Exchange Commission maintains a WEB site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company) that file electronically with the
Commission. That address is (http: //www.sec.gov)
19
TABLE I
SUMMARY OF OPERATIONS
- - - - - - - Years Ending December 31, - - - -
(In Thousands Except for Share Amounts)
2000 1999 1998 1997 1996
Total Interest Income $ 18,207 $ 16,243 $ 15,772 $ 15,084 $ 14,182
Total Interest Expense (8,790) (7,663) (7,745) (7,474) (7,103)
-------- ------- ------- ------- -------
Net Interest Income 9,417 8,580 8,027 7,610 7,079
Provision for Loan Losses 500 320 355 190 135
------- ------- -------- ------- -------
Net Interest Income after
Provision for Loan Losses 8,917 8,260 7,672 7,420 6,944
Other Income 1,263 1,026 735 571 592
Other Expenses 6,631 5,912 5,377 5,115 4,570
------- ------- -------- ------- -------
Income before Income Taxes 3,549 3,374 3,030 2,876 2,966
Income Tax Expense 1,168 1,049 1,018 996 953
------- ------- -------- ------- -------
Net Income $ 2,381 $ 2,325 $ 2,012 $ 1,880 $ 2,013
======= ======= ======== ======= =======
Net Income Per Share $ 4.74 $ 4.63 $ 4.01 $ 3.73 $ 3.92
Dividends Per Share $ 1.24 $ 1.16 $ 1.08 $ 1.00 $ .94
Total Assets at Year End $248,600 $220,481 $ 210,981 $190,770 $178,847
======= ======= ======== ======= =======
Return on Average Assets 1.03% 1.08% 1.01% 1.00% 1.15%
Return on Average Equity 9.40% 9.94% 9.12% 8.80% 9.99%
Dividend Payout Ratio 26.14% 25.04% 26.94% 26.80% 24.00%
Year End Equity to Assets
Ratio 10.57% 10.99% 10.83% 11.16% 11.31%
20
TABLE II
NET INTEREST MARGIN AND AVERAGE BALANCE ANALYSIS
(Dollar amounts in thousands)
2000 1999 1998
------------------------- ----------------------------- -------------------------
Income/ Yield/ Income/ Yield/ Income/ Yield/
EARNING ASSETS Average Expense Rate Average Expense Rate Average Expense Rate
Loans 1,3 $176,010 $ 15,893 9.03 $155,102 $ 13,699 8.81 $ 143,197 $ 13,163 9.18
Investment securities:
Taxable 4 26,583 1,641 6.17 29,235 1,755 6.00 31,402 1,952 6.22
Nontaxable 1,4 3,285 262 7.98 3,192 271 8.49 3,316 270 8.14
------- ------- ----- ------- -------- ---- ------- ------ ----
Total Investment
Securities 29,868 1,903 6.37 32,427 2,026 6.25 34,718 2,222 6.40
Interest bearing
deposits
in banks 3,464 179 5.17 4,161 222 5.33 1,215 64 5.27
Federal funds sold 5,276 330 6.25 8,685 432 4.97 8,216 440 5.36
----- ------ ----- ----- ------ ----- ----- ---- ----
Total Earning
Assets 214,618 18,305 8.53 200,375 16,379 8.17 187,346 15,889 8.48
------- ----- ------ ---- ------- ------
Allowance for loan
losses (1,474) (1,322) (1,319)
Nonearnings assets 18,608 16,931 13,636
------- ------ ------
Total Assets $231,752 $215,984 $199,663
INTEREST-BEARING LIABILITIES
Deposits:
Demand $ 30,015 $ 867 2.89 $ 32,971 $ 809 2.45 $ 29,187 $ 808 2.77
Savings 21,784 650 2.98 21,250 583 2.74 20,135 671 3.33
Time deposits 126,041 7,061 5.60 114,632 6,133 5.35 108,382 6,213 5.73
------- ------- ------- ------- ------- ---- -------- ----- ----
Total Deposits 177,840 8,578 4.82 168,853 7,525 4.46 157,704 7,692 4.88
Other borrowed money 3,762 212 5.64 2,560 138 5.39 974 53 5.44
------ ------ ---- ------- ----- ---- -------- ----- ----
Total Interest
Bearing
Liabilities 181,602 8,790 4.84 171,413 7,663 4.47 158,678 7,745 4.88
------- ------ ----- ---- ----- ----
Noninterest bearing
deposits 23,035 20,319 17,744
Other liabilities 1,793 856 1,186
------- ----- ------
Total Liabilities 206,430 192,588 177,608
Stockholders'
Equity 25,322 23,396 22,055
------- ------ ------
Total Liabilities
and Equity $231,752 $215,984 $199,663
Net Interest
Earnings $ 9,515 $ 8,716 $ 8,144
===== ===== =====
Net Yield on
Interest Earning
Assets 4.43% 4.35% 4.35%
====== ===== ====
1 Yields are computed on a taxable equivalent basis using a 37% income tax
rate.
2 Average balances are based on daily balances.
3 Includes loans in nonaccrual status.
4 Average balances for securities available for sale are based on amortized
carrying values and do not reflect changes in market values.
21
TABLE III
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
(On a fully taxable equivalent basis)
(In thousands of dollars)
2000 Compared to 1999 1999 Compared to 1998
-------------------------- ---------------------
Increase (Decrease) Increase (Decrease)
Due to Change in: Total Due to Change in: Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------- -------- ---------- ------- ------ ---------
Interest Income:
Loans 2 $1,841 $ 353 $2,194 $1,093 $(557) $ 536
Investment Securities:
Taxable (159) 45 (114) (135) (62) (197)
Nontaxable 8 (17) (9) (10) 11 1
----- ---- ---- ---- ---- ----
Total Investment
Securities (151) 28 (123) (145) (51) (196)
Interest bearing
deposits in banks (37) (6) (43) 155 3 158
Federal funds sold (169) 67 (102) 25 (33) (8)
----- ---- ---- ---- ---- ----
Total Interest Income 1,484 442 1,926 1,128 (638) 490
----- ---- ----- ----- ---- ----
Interest Expense:
Deposits:
Demand (72) 130 58 105 (104) 1
Savings 15 52 67 37 (125) (88)
All other time
deposits 610 318 928 358 (438) (80)
Other borrowed money 65 9 74 86 (1) 85
----- ---- ---- ---- ---- ----
Total Interest Expense 618 509 1,127 586 (668) (82)
----- ---- ----- ---- ---- ----
Net Interest Income $ 866 $ (67) $ 799 $ 542 $ 30 $ 572
===== ==== ==== ==== ==== ====
1 Changes in volume are calculated based on the difference in average balance
multiplied by the prior year average rate. Rate change differences are the
difference in the volume changes and the actual dollar amount of interest
income or expense changes.
2 Nonaccrual loans have been included in average asset balances.
22
TABLE IV
INTEREST RATE SENSITIVITY ANALYSIS
(In thousands of dollars)
DECEMBER 31, 2000
More than
5 Years
1 - 90 91 - 365 1 to 3 3 to 5 or Without
Days Days Years Years Maturity Total
EARNINGS ASSETS
Loans $23,758 $81,296 $46,202 $29,748 $8,263 $189,267
Fed funds sold 7,040 7,040
Securities 2,717 9,299 7,647 2,703 3,461 25,827
Interest bearing time
deposits 4,853 200 1,308 6,361
------ ------ ------ ------ ----- -------
Total 38,368 90,795 55,157 32,451 11,724 228,495
------ ------ ------ ------ ------ -------
INTEREST BEARING LIABILITIES
Transaction accounts 17,679 17,679
Money market accounts 12,281 12,281
Savings accounts 23,334 23,334
Time deposits more
than $100,000 4,172 14,335 13,754 2,623 34,884
Time deposits less
than $100,000 15,745 40,408 38,912 6,883 76 102,024
Other borrowed money 1,172 462 66 2,309 4,009
------ ------ ------ ------ ----- -------
Total 73,211 55,915 53,128 9,572 2,385 194,211
------ ------ ------ ------ ----- -------
Discrete interest
sensitivity GAP (34,843) 34,880 2,029 22,879 9,339 34,284
Cumulative interest
sensitivity GAP (34,843) 37 2,066 24,945 34,284
Ratio of cumulative
Interest sensitive
assets to cumulative
interest sensitive
liabilities 52.41% 100.03% 101.13% 113.00% 117.65%
Assumes all transaction, money market and savings deposit accounts reprice
within 90 days.
23
Item 7. Financial Statements
Index to Financial Statements
Page
Consolidated Balance Sheets as of December 31, 2000 and 1999 24
Consolidated Statements of Income for the Years Ended December 31,
2000, 1999 and 1998 25
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 2000, 1999 and 1998 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 27
Notes to Consolidated Financial Statements 28
Independent Auditors' Report 46
24
CONSOLIDATED BALANCE SHEETS
HIGHLANDS BANKSHARES, INC.
December 31,
ASSETS 2000 1999
------------ ------------
Cash and due from banks (notes 2, 3 and 16) $ 7,061,961 $ 7,312,241
Interest bearing deposits in banks 6,360,931 2,436,271
Federal funds sold 7,039,508 2,702,633
Investments:
Securities held to maturity (note 4) 2,228,390 3,176,547
(fair value of $2,233,856 and $3,175,918
at December 31, 2000 and 1999, respectively)
Securities available for sale (note 4) 22,835,324 25,892,783
Other investments 763,050 745,550
Loans (notes 5, 14, 15 and 16) 189,267,688 166,614,055
Less allowance for loan losses (note 6) (1,492,936) (1,318,332)
----------- -----------
Net Loans 187,774,752 165,295,723
Bank premises and equipment (note 7) 6,809,453 5,690,860
Interest receivable 1,901,296 1,627,874
Investment in insurance contracts 4,854,304 4,661,662
Other assets 971,124 938,901
----------- -----------
Total Assets $248,600,093 $220,481,045
=========== ===========
LIABILITIES
Deposits:
Noninterest bearing $ 26,369,759 $ 21,085,145
Interest bearing
Money market and interest checking 17,678,521 18,101,823
Money market savings 12,281,053 13,391,006
Savings accounts 23,333,958 21,330,208
Certificates of deposit over $100,000
(note 8) 34,884,029 28,528,959
All other time deposits (note 8) 102,023,919 89,907,847
----------- -----------
Total Deposits 216,571,239 192,344,988
Accrued expenses and other liabilities 1,751,921 1,344,052
Long-term debt (note 9) 4,009,319 2,567,958
----------- -----------
Total Liabilities 222,332,479 196,256,998
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 3,000,000
and 1,000,000 shares authorized at
December 31, 2000 and 1999, respectively,
546,764 shares issued 2,733,820 2,733,820
Surplus 1,661,987 1,661,987
Retained earnings (note 12) 22,825,747 21,067,191
Other accumulated comprehensive income (loss) 38,761 (246,250)
----------- -----------
27,260,315 25,216,748
Treasury stock (at cost, 44,866 shares in
2000 and 1999) (992,701) (992,701)
----------- -----------
Total Stockholders' Equity 26,267,614 24,224,047
----------- -----------
Total Liabilities and Stockholders' Equity $248,600,093 $220,481,045
=========== ===========
The accompanying notes are an integral part of this statement.
25
CONSOLIDATED STATEMENTS OF INCOME
HIGHLANDS BANKSHARES, INC.
Years Ended December 31,
------------------------------
2000 1999 1998
INTEREST INCOME:
Loans, including fees $15,891,868 $13,663,857 $13,144,542
Federal funds sold 330,761 431,670 440,293
Interest bearing deposits 179,100 221,724 64,230
Investment securities - taxable 1,641,057 1,754,509 1,952,454
Investment securities - nontaxable 164,486 171,192 170,115
---------- ---------- ----------
Total Interest Income 18,207,272 16,242,952 15,771,634
---------- ---------- ----------
INTEREST EXPENSE:
Time deposits over $100,000 1,865,498 1,524,334 1,428,100
Other deposits 6,712,478 6,000,044 6,263,489
---------- ---------- ----------
Total Interest on Deposits 8,577,976 7,524,378 7,691,589
Borrowed money 212,054 138,313 52,937
---------- ---------- ----------
Total Interest Expense 8,790,030 7,662,691 7,744,526
---------- ---------- ----------
NET INTEREST INCOME 9,417,242 8,580,261 8,027,108
PROVISION FOR LOAN LOSSES (note 6) 500,000 320,000 355,000
---------- ---------- ----------
Net Interest Income after Provision
for Loan Losses 8,917,242 8,260,261 7,672,108
---------- ---------- ----------
NONINTEREST INCOME:
Service charges 591,614 409,052 339,289
Insurance commissions and income 132,105 112,339 107,482
Other operating income 435,534 568,903 290,221
Gain (loss) on security
transactions (note 4) 103,870 (63,590) (2,071)
-------- ------- -------
Total Noninterest Income 1,263,123 1,026,704 734,921
---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and benefits (note 11) 3,629,664 3,230,973 2,916,970
Occupancy expense 302,738 269,483 269,469
Equipment expense 548,850 472,441 411,660
Data processing expense 489,744 473,392 456,740
Other operating expenses 1,659,834 1,466,016 1,321,750
---------- ---------- ----------
Total Noninterest Expenses 6,630,830 5,912,305 5,376,589
---------- ---------- ----------
Income before Income Tax Expense 3,549,535 3,374,660 3,030,440
INCOME TAX EXPENSE (note 10) 1,168,624 1,049,291 1,018,558
---------- ---------- ----------
NET INCOME $ 2,380,911 $ 2,325,369 $ 2,011,882
========== ========== ==========
Earnings Per Share $ 4.74 $ 4.63 $ 4.01
========== ========== ==========
Cash Dividends Paid Per Share $ 1.24 $ 1.16 $ 1.08
========== ========== ==========
Weighted Average Shares Outstanding 501,898 501,898 501,898
========== ========== ==========
The accompanying notes are an integral part of this statement.
26
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
HIGHLANDS BANKSHARES, INC.
Accumulated
Other
Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income (Loss) Stock Total
BALANCE
DECEMBER 31, 1997 $ 2,733,820 $1,661,987 $17,854,185 $ 39,710 $ (992,701) $21,297,001
Comprehensive Income
Net income 2,011,882 2,011,882
Change in unrealized
gain (loss) on
securities available
for sale, net of
tax effect of $46,814
(see note 2(l)) 79,712 79,712
--------
Total Comprehensive
Income 2,091,594
Cash dividends (542,048) (542,048)
---------- -------- -------- -------- -------- --------
BALANCE
DECEMBER 31, 1998 2,733,820 1,661,987 19,324,019 119,422 (992,701) 22,846,547
Comprehensive Income
Net income 2,325,369 2,325,369
Change in unrealized
gain (loss) on
securities available
for sale, net of
tax effect of $214,757
(see note 2(l)) (365,672) (365,672)
--------
Total Comprehensive
Income 1,959,697
Cash dividends (582,197) (582,197)
---------- -------- -------- -------- -------- --------
BALANCE
DECEMBER 31, 1999 2,733,820 1,661,987 21,067,191 (246,250) (992,701) 24,224,047
Comprehensive Income
Net income 2,380,911 2,380,911
Change in unrealized
gain (loss) on
securities available
for sale, net of
tax effect of $167,386
(see note 2(l)) 285,011 285,011
--------
Total Comprehensive
Income 2,665,922
Cash dividends (622,355) (622,355)
---------- -------- -------- -------- -------- --------
BALANCE
DECEMBER 31, 2000 $ 2,733,820 $1,661,987 $ 22,825,747 $ 38,761 $(992,701) $26,267,614
The accompanying notes are an integral part of this statement.
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
HIGHLANDS BANKSHARES, INC.
Years Ended December 31,
2000 1999 1998
-------------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,380,911 $ 2,325,369 $ 2,011,882
Adjustments to reconcile net income to
net cash provided by operating
activities:
(Gain) loss on sale of securities (103,870) 63,590 2,071
Gain on sale of property and
equipment (237)
Depreciation 447,697 407,147 350,429
Increase in insurance contracts (192,642) (139,230) (52,432)
Net amortization of security
premiums 2,171 151,150 15,062
Provision for loan losses 500,000 320,000 355,000
Deferred income tax expense 18,010 (15,192) (6,441)
Change in other assets and liabilities:
Interest receivable (158,422) (71,527) (8,743)
Other assets 86,378 (105,451) 127,550
Accrued expenses 315,869 116,566 (83,512)
---------- ---------- ----------
Net Cash Provided by Operating
Activities 3,295,865 3,052,422 2,710,866
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of branch, net of cash
acquired (1,220,000)
Proceeds from maturity of securities
held to maturity 952,376 332,027 1,068,833
Proceeds from maturities of securities
available for sale 7,590,970 15,000,285 12,719,231
Proceeds from sales of securities
available for sale 2,115,255 377,499
Purchases of securities available
for sale (3,978,886)(12,312,504)(10,681,150)
Net change in other investments (17,500) (14,600) (15,700)
Net change in deposits in other banks (3,924,660) 995,252 (2,604,887)
Net increase in loans (17,279,029)(18,587,196)(11,647,875)
Change in federal funds sold (2,736,875) 9,671,650 (5,479,168)
Purchase of property and equipment (1,287,893) (1,338,297) (337,341)
Proceeds from sale of property and
equipment 2,840
Investment in insurance contracts (2,400,000) (2,070,000)
----------- ---------- -----------
Net Cash Used in Investing Activities (19,783,402) (8,275,884)(19,048,057)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits 14,050,142 6,489,323 7,306,146
Net change in other deposit accounts 1,368,109 1,268,300 9,345,508
Additional long-term debt 1,731,532 394,922 2,145,532
Repayment of long-term debt (290,171) (146,508) (52,140)
Dividends paid in cash (622,355) (582,197) (542,048)
-------- -------- ---------
Net Cash Provided by Financing
Activities 16,237,257 7,423,840 18,202,998
---------- ---------- ----------
CASH AND CASH EQUIVALENTS:
Net (decrease) increase in cash and
due from banks (250,280) 2,200,378 1,865,807
Cash and due from banks, beginning
of year 7,312,241 5,111,863 3,246,056
---------- ---------- ----------
Cash and Due from Banks, End of Year $ 7,061,961 $ 7,312,241 $ 5,111,863
========== ========== ==========
Supplemental Disclosures:
Cash paid for:
Interest expense $ 8,610,571 $ 7,688,056 $ 7,798,847
Income taxes 1,203,000 1,152,533 1,013,250
The accompanying notes are an integral part of this statement.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 1 NATURE OF OPERATIONS:
Highlands Bankshares, Inc. (the "Company") is a bank holding
company and operates under a charter issued by the state of West
Virginia. The Company owns all of the outstanding stock of The
Grant County Bank, the Capon Valley Bank and HBI Life Insurance
Company, Inc. which operate under charters issued in West Virginia
and Arizona. State chartered banks are subject to regulation by
the West Virginia Division of Banking, Federal Reserve Bank and
the Federal Deposit Insurance Corporation while the insurance
company is regulated by the Arizona Department of Insurance. The
Banks provide services to customers located mainly in Grant,
Hardy, Hampshire, Mineral, Pendleton and Randolph counties of West
Virginia, including the towns of Petersburg, Keyser, Moorefield
and Wardensville through seven branch offices. The insurance
company sells life and accident coverage exclusively through the
Company's subsidiary banks.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Highlands Bankshares,
Inc. ("Company") and its subsidiaries conform to generally
accepted accounting principles and to accepted practice within the
banking industry.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
The Grant County Bank, the Capon Valley Bank and HBI Life
Insurance Company. All significant intercompany accounts and
transactions have been eliminated.
(b) Use of Estimates in the Preparation of Financial Statements
In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported
amounts in those statements; actual results could differ
significantly from those estimates. A material estimate that
is particularly susceptible to significant changes is the
determination of the allowance for loan losses, which is
sensitive to changes in local economic conditions.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and noninterest
bearing funds at correspondent institutions.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Securities
Securities that the Company has both the positive intent and
ability to hold to maturity (at time of purchase) are
classified as held to maturity securities. All other
securities are classified as available for sale. Securities
held to maturity are carried at historical cost and adjusted
for amortization of premiums and accretion of discounts, using
the effective interest method. Securities available for sale
are carried at fair value with any valuation adjustments
reported, net of deferred taxes, as other accumulated
comprehensive income. Also included in securities available
for sale are marketable equity securities.
Other investments consist of investments in the Federal Home
Loan Bank of Pittsburgh and the Federal Reserve Bank of
Richmond. Such investments are required as members of these
institutions and these investments cannot be sold without a
change in the members' borrowing or service levels.
Interest and dividends on securities and amortization of
premiums and discounts on securities are reported as interest
income using the effective interest method. Gains (losses)
realized on sales and calls of securities are determined using
the specific identification method.
(e) Loans
Loans are carried on the balance sheet net of any unearned
interest and the allowance for loan losses. Interest income on
loans is determined using the effective interest method on the
daily amount of principal outstanding except where serious
doubt exists as to collectibility of the loan, in which case
the accrual of income is discontinued.
(f) Allowance For Loan Losses
The allowance for loan losses is based upon management's
knowledge and review of the loan portfolio. Estimation of an
adequate allowance for loan losses involves the exercise of
judgement, the use of assumptions with respect to present
economic conditions and knowledge of the environment in which
the Banks operate. Among the factors considered in determining
the level of the allowance are the changes in composition of
the loan portfolio, the amount of delinquent and nonaccrual
loans, past loan loss experience and the value of collateral
securing the loans.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Impaired Loans
Accounting standards require that impaired loans be presented
in the financial statements at the present value of expected
future cash flows or at the fair value of the loan's
collateral. A valuation allowance is required to the extent
that such measurement is less than the recorded investment.
Under this standard a loan is considered impaired based on
current information and events, if it is probable that the
Company will be unable to collect the scheduled payments of
principal and interest when due under the contractual terms of
the loan agreement. Charge-offs for impaired loans occur when
the loan, or portion of the loan, is determined to be
uncollectible.
(h) Bank Premises and Equipment
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is charged to income
over the estimated useful lives of the assets using a
combination of the straight-line and accelerated methods. The
ranges of the useful lives of bank premises and equipment are
as follows:
Buildings and Improvements 15 - 40 years
Furniture and fixtures 5 - 15 years
Maintenance, repairs, renewals, and minor improvements are
charged to operations as incurred. Gains and losses on routine
dispositions are reflected in other income or expense.
(i) Income Taxes
Amounts provided for income tax expense are based on income
reported for financial statement purposes rather than amounts
currently payable under federal and state tax laws. Deferred
taxes, which arise principally from differences between the
period in which certain income and expenses are recognized for
financial accounting purposes and the period in which they
affect taxable income, are included in the amounts provided
for income taxes.
(j) Earnings Per Share
Earnings per share are based on the weighted average number of
shares outstanding.
(k) Foreclosed Real Estate
The components of foreclosed real estate are adjusted to the
lower of cost or fair value less estimated costs of disposal.
The current year provision for a valuation allowance has been
recorded as an expense to current operations.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(l) Comprehensive Income
The Corporation adopted SFAS 130, Reporting Comprehensive
Income, as of January 1, 1998. Accounting principles generally
require that recognized revenue, expenses, gains and losses be
included in net income. Certain changes in assets and
liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet. Such
items, along with net income, are components of comprehensive
income. The adoption of SFAS 130 had no effect on the
Corporation's net income or shareholders' equity.
The components of other comprehensive income and related tax
effects are as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Unrealized holding gains
(losses)
on available-for-sale
securities $ 556,267 $(644,019) $ 124,455
Reclassification adjustment
for (gains) losses
realized in income (103,870) 63,590 2,071
-------- -------- --------
Net Unrealized Gains
(Losses) 452,397 (580,429) 126,526
Tax effect (167,386) 214,757 (46,814)
-------- -------- --------
Net Change $ 285,011 $(365,672) $ 79,712
======== ======== ========
NOTE 3 CASH AND DUE FROM BANKS:
The Banks are required to maintain average reserve balances based
on a percentage of deposits. The Banks have generally met this
requirement through average cash on hand and balances with their
correspondent institutions.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 4 SECURITIES:
The carrying amount and estimated fair value of securities are as
follows:
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
Held to Maturity
December 31, 2000
U.S. Agencies $ 88,609 $ $ 319 $ 88,290
Mortgage-backed 8,893 298 9,191
State and municipals 2,130,888 13,042 7,555 2,136,375
---------- --------- --------- ---------
Total Securities
Held to Maturity $ 2,228,390 $ 13,340 $ 7,874 $2 ,233,856
========== ========= ========= =========
December 31, 1999
Mortgage-backed $ 339,877 $ 406 $ 590 $ 339,693
State and municipals 2,836,670 21,575 22,020 2,836,225
---------- --------- --------- ---------
Total Securities
Held to Maturity $ 3,176,547 $ 21,981 $ 22,610 $ 3,175,918
========== ========= ========= =========
Available for Sale
December 31, 2000
U. S. Treasuries
and Agencies $18,178,632 $ 79,250 $ 38,211 $18,219,671
Mortgage-backed 3,257,381 24,107 6,402 3,275,086
State and municipals 771,710 19,146 1,539 789,317
Marketable equities 58,274 6,574 51,700
Corporate
obligations 507,796 8,246 499,550
---------- --------- --------- ---------
Total Securities
Available for
Sale $22,773,793 $ 122,503 $ 60,972 $22,835,324
========== ========= ========= ==========
December 31, 1999
U. S. Treasuries
and Agencies $20,923,302 $ 6,971 $ 260,709 $20,669,564
Mortgage-backed 4,426,672 5,988 93,779 4,338,881
State and municipals 255,000 12,112 242,888
Marketable equities 167,211 15,711 151,500
Corporate
obligations 511,466 21,516 489,950
---------- --------- --------- ---------
Total Securities
Available for
Sale $26,283,651 $ 12,959 $ 403,827 $25,892,783
========== ========= ========= ==========
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 4 SECURITIES (CONTINUED):
The carrying amount and fair value of debt securities at December 31,
2000, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Securities Held to Maturity Fair
Cost Value
Due in one year or less $ 531,435 $ 531,986
Due after one year through five years 1,108,326 1,104,174
Due after five years through ten years 491,127 500,215
Due after ten years 88,609 88,290
Mortgage-backed securities 8,893 9,191
--------- ---------
Total Held to Maturity $2,228,390 $ 2,233,856
========= ==========
Securities Available for Sale Fair
Cost Value
Due in one year or less $7,034,645 $ 7,018,526
Due after one year through five years 10,745,968 10,801,394
Due after five years through ten years 1,355,000 1,357,305
Due after ten years 322,525 331,313
Mortgage-backed securities 3,257,381 3,275,086
--------- ---------
Total Fixed Rate Securities 22,715,519 22,783,624
Equities 58,274 51,700
--------- ---------
Total Available for Sale $22,773,793 $ 22,835,324
========== ===========
The carrying amount (which approximates market value) of securities
pledged by the banks to primarily secure deposits amounted to
$10,786,000 at December 31, 2000 and $10,326,000 at December 31, 1999.
There were no holdings totaling more than 10% of stockholders' equity
with any issuer as of December 31, 2000 and 1999.
All gains or losses in 1998 are from calls or early payoffs of
securities designated as held to maturity. Losses in 1999 and gains in
2000 arose from the sale of securities available for sale. Realized
gains or losses for the years ending December 31 are as follows:
2000 1999 1998
------------ ------------ --------
Gains $ 103,870 $ 4,259 $ 9,438
Losses (67,849) (11,509)
-------- --------- ---------
Total $ 103,870 $ (63,590) $ (2,071)
======== ========= =========
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 5 LOANS:
Loans outstanding as of December 31 are summarized as follows:
2000 1999
-------------- ------
Commercial $ 37,681,492 $ 31,566,793
Real estate construction 4,061,000 3,296,000
Real estate mortgages 101,889,826 93,391,419
Consumer installment 46,191,314 39,993,963
----------- -----------
Subtotal 189,823,632 168,248,175
Unearned interest (555,944) (1,634,120)
----------- -----------
Total Loans $189,267,688 $166,614,055
=========== ===========
NOTE 6 ALLOWANCE FOR LOAN LOSSES:
A summary of changes in the allowance for loan losses for the years
ended December 31 is shown in the following schedule:
2000 1999 1998
------------------------- ------
Balance at beginning
of year $ 1,318,332 $ 1,355,377 $ 1,369,566
Allowance relating to loans
acquired in purchase 86,873
Provision charged to
operating expenses 500,000 320,000 355,000
Loan recoveries 102,873 90,544 107,051
Loans charged off (515,142) (447,589) (476,240)
---------- ---------- -----------
Balance at end of year $ 1,492,936 $ 1,318,332 $ 1,355,377
========== ========== ===========
Percentage of outstanding
loans .79% .79% .91%
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment as of December 31 are summarized as
follows:
2000 1999
------------ ----------
Land $ 1,017,103 $ 917,139
Buildings and improvements 6,087,509 5,019,994
Furniture and equipment 3,322,481 2,925,284
---------- ----------
Total cost 10,427,093 8,862,417
Less - accumulated depreciation (3,617,640) (3,171,557)
---------- -----------
Net Book Value $ 6,809,453 $ 5,690,860
========== ==========
Provisions for depreciation of $447,697 in 2000, $407,147 in 1999 and
$350,429 in 1998 were charged to operations.
NOTE 8 DEPOSITS:
At December 31, 2000, the scheduled maturities of certificates of
deposit are as follows:
2001 $ 75,987,325
2002 43,890,585
2003 7,448,992
2004 3,238,955
2005 6,342,091
-----------
Total $136,907,948
===========
NOTE 9 LONG-TERM DEBT:
The Company has borrowed money from the Federal Home Loan Bank of
Pittsburgh (FHLB). The interest rates on most of the notes payable
were fixed at the time of the advance and range from 2.50% to 6.85%;
the weighted average interest rate is 5.78% at December 31, 2000. The
debt is secured by the assets of the Banks.
Repayments of long-term debt are due either monthly or quarterly.
Interest expense of $212,054, $138,313, and $52,937 was incurred on
these debts in 2000, 1999, and 1998, respectively. The maturities of
long-term debt as of December 31, 2000 are as follows:
2001 $ 1,363,977
2002 202,845
2003 672,157
2004 199,555
2005 210,578
Thereafter 1,360,207
-----------
Total $ 4,009,319
===========
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 10 INCOME TAX EXPENSE:
The components of income tax expense for the years ended December 31,
are summarized as follows:
2000 1999 1998
------------ ----------- --------
Current Expense
Federal $ 953,961 $ 930,223 $ 899,787
State 196,653 134,260 125,212
--------- -------- --------
Total Current Expense 1,150,614 1,064,483 1,024,999
--------- --------- ---------
Deferred Expense
Federal 16,431 (13,961) (5,919)
State 1,579 (1,231) (522)
--------- -------- --------
Total Deferred Expense 18,010 (15,192) (6,441)
--------- -------- --------
Income Tax Expense $1,168,624 $1,049,291 $1,018,558
========= ========= =========
Income expense (benefits) relating
to security transactions are as
follows: $ 38,432 $ ( 23,528) $ (766)
The deferred tax effects of temporary differences for the years ended
December 31 as follows:
2000 1999 1998
------------ -------------------
Tax effect of temporary differences:
Provision for loan losses $ (12,874) $ (10,937) $ (24,887)
Sale of loans 3,693 7,192 32,612
Pension expense (24,694) (26,626) (18,030)
Depreciation 52,928 23,945 30,497
Deferred compensation (38,471) (24,797)
Basis of securities sold 75,369
Miscellaneous (37,941) 16,031 (26,633)
------- ------- -------
Net (increase) decrease in
Deferred income tax benefit $ 18,010 $ (15,192) $ (6,441)
======== ======= =======
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 10 INCOME TAX EXPENSE (CONTINUED):
The net deferred tax assets arising from temporary differences as of
December 31 are summarized as follows:
2000 1999
------------ -------
Deferred Tax Assets:
Provision for loan losses $ 382,072 $ 316,232
Insurance commissions 32,181 30,663
Unrealized loss on securities available
for sale 144,618
Deferred compensation 89,319 50,860
Accrued pension expense 23,965
Other 25,310 10,796
-------- --------
Total Assets 552,847 553,169
-------- --------
Deferred Tax Liabilities:
-------------------------
Unrealized gain on securities
available for sale 22,769
Accretion income 22,914 41,840
Property basis differences 299,745 156,768
-------- --------
Total Liabilities 345,428 198,608
-------- --------
Net Tax Asset $ 207,419 $ 354,561
======== ========
The following table summarizes the difference between income tax
expense and the amount computed by applying the federal statutory
income tax rate for the years ended December 31:
2000 1999 1998
------------ ------------- ------
Amounts at federal
statutory rates $ 1,206,848 $1,147,384 $1,030,351
Additions (reductions)
Resulting from:
Tax-exempt income (82,259) (71,484) (61,331)
Partially exempt income (36,606) (30,125) (27,497)
State income taxes, net 115,964 100,227 90,004
Income from life insurance
contracts (71,798) (51,515) (15,096)
Capital losses incurred
(utilized) (53,346)
State income tax adjustment 30,000
Other 6,475 8,150 2,127
---------- --------- ---------
Income tax expense $ 1,168,624 $1,049,291 $1,018,558
========== ========= =========
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 11 EMPLOYEE BENEFITS:
The Company's two subsidiary banks each have separate retirement and
profit sharing plans which cover substantially all full time employees
at each bank. The Capon Valley Bank has a defined contribution pension
plan with 401(k) features that is funded with discretionary
contributions by the Company. The Company matches on a limited basis
the contributions of the employees. Investment of employee balances is
done through the direction of each employee.
The Grant County Bank is a member of the West Virginia Bankers'
Association Retirement Plan. Benefits under the plan are based on
compensation and years of service with 100% vesting after seven years
of service. The Plan's assets are in excess of the projected benefit
obligations and thus the Bank was not required to make contributions
to the Plan in 2000, 1999 or 1998. The amounts of the accrued
liability and the net pension expense reflected in operations are
insignificant. In addition, The Grant County Bank also maintains a
profit sharing plan covering substantially all employees to which
contributions are made at the discretion of the Board of Directors.
The Company has established an employee stock ownership plan which
will provide stock ownership to all employees of the Company. The Plan
provides total vesting upon the attainment of seven years of service.
Contributions to the plan are made at the discretion of the Board of
Directors and are allocated based on the compensation of each employee
relative to total compensation paid by the Company. All shares held by
the Plan will be considered outstanding in the computation of earnings
per share. Shares of Company stock when distributed will have
restrictions on transferability.
Expenses related to the above benefit plans charged to operations
totaled $266,601 in 2000, $266,704 in 1999 and $197,386 in 1998.
NOTE 12 RESTRICTIONS ON DIVIDENDS OF SUBSIDIARY BANKS:
The principal source of funds of Highlands Bankshares, Inc. is
dividends paid by subsidiary banks. The various regulatory authorities
impose restrictions on dividends paid by a state bank. A state bank
cannot pay dividends (without the consent of state banking
authorities) in excess of the total net profits of the current year
and the combined retained profits of the previous two years. As of
January 1, 2001, the banks could pay dividends to the Company of
approximately $3,441,000 without permission of the regulatory
authorities.
NOTE 13 ACQUISITION OF THE STOCKMANS BANK OF HARMAN
On July 27, 2000, The Grant County Bank acquired the remaining stock
not already owned by Highlands Bankshares from the stockholders of the
Stockmans Bank of Harman (hereinafter referred to as "Harman").
Stockmans was a single branch bank serving Randolph County in West
Virginia. The acquisition has been accounted for as purchase under
generally accepted accounting principles and operations subsequent to
July 26, 2000 have been included as part of the operations of the
Company for the year 2000. Grant purchased the 229 shares not already
owned by Highlands from unrelated shareholders and Highlands
contributed the 21 shares it owned to Grant as a capital contribution.
Unrelated shareholders were paid $7,850 per share in cash for their
shares at closing. The total acquisition cost, including shares
acquired in previous years, was $1,878,000 plus expenses. The total
purchase price was allocated as follows:
Cash and Due From Banks $ .7 million
Loans Receivable 5.7 million
Securities 2.2 million
Fed Funds Sold 1.6 million
Other Assets .7 million
Deposits Assumed (8.7) million
Other Liabilities (.3) million
Cash Paid and Expenses of Purchase (1.9) million
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 13 ACQUISITION OF THE STOCKMANS BANK OF HARMAN (CONTINUED)
As part of the accounting for this transaction, the Company acquired
goodwill totaling $219,000 which is being amortized on a straight line
basis over a period of ten years.
Proforma operations for 2000 and 1999, as if the companies had been
combined from the beginning of each year, are shown below (in
thousands of dollars):
2000 1999
Interest Income $ 18,596 $ 16,952
Interest Expense (8,951) (7,960)
--------- ---------
Net Interest Income 9,645 8,992
Provision for Loan Losses (500) (347)
--------- ---------
Net 9,145 8,645
Noninterest Income 1,275 1,055
Noninterest Expense (6,899) (6,364)
--------- ---------
Income before Income Taxes 3,521 3,336
Provision for Income Taxes (1,152) (1,026)
--------- ---------
Net Income $ 2,369 $ 2,310
========= =========
NOTE 14 TRANSACTIONS WITH RELATED PARTIES:
During the year, officers and directors (and companies controlled by
them) were customers of and had transactions with the subsidiary Banks
in the normal course of business. These transactions were made on
substantially the same terms as those prevailing for other customers
and did not involve any abnormal risk. The aggregate amount of loans
to related parties of $2,443,788 at December 31, 1999 was increased
$859,495 by new loans and reduced $882,922 by payments resulting in an
ending balance of $2,420,361 at December 31, 2000.
NOTE 15 COMMITMENTS AND GUARANTEES:
The Banks make commitments to extend credit in the normal
course of business and issued standby letters of credit to meet the
financing needs of their customers. The amount of the commitments
represents the Banks' exposure to credit loss that is not included in
the balance sheet. As of the balance sheet dates, the Banks had
outstanding the following commitments:
2000 1999
Commitments to extend credit $11,517,000 $ 6,212,000
Standby letters of credit 438,000 215,000
The Banks use the same credit policies in making commitments and
issuing letters of credit as it does for the loans reflected in the
balance sheet.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Banks evaluate each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies
but may include accounts receivable, inventory, property, plant and
equipment.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 16 CONCENTRATIONS:
The Banks grant commercial, residential real estate and consumer loans
to customers located primarily in the eastern portion of the State of
West Virginia. Although the Banks have a diversified loan portfolio, a
substantial portion of the debtors' ability to honor their contracts
is dependent upon the agribusiness economic sector. Collateral
required by the Banks is determined on an individual basis depending
on the purpose of the loan and the financial condition of the
borrower. The ultimate collectibility of the loan portfolios is
susceptible to changes in local economic conditions. Approximately 56%
of the loan portfolio is secured by real estate. See note 5 for a
complete breakdown of loans by type.
The Bank has cash deposited in and federal funds sold to other
commercial banks totaling $6,809,453 and $6,669,749 at December 31,
2000 and 1999, respectively.
NOTE 17 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's assets and liabilities is influenced
heavily by market conditions. Fair value applies to both assets and
liabilities, either on or off the balance sheet. Fair value is defined
as the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash, Due from Banks and Money Market Investments
The carrying amount of cash, due from bank balances, interest bearing
deposits and federal funds sold is a reasonable estimate of fair
value.
Securities
Fair values of securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities, taking into consideration the credit risk in various loan
categories.
Deposits
The fair value of demand, interest checking, regular savings and money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Long Term Debt
The fair value of fixed rate loans is estimated using the rates
currently offered by the Federal Intermediate Credit Bank for
indebtedness with similar maturities.
Interest Payable and Receivable
The carrying value of amounts of interest receivable and payable is a
reasonable estimate of fair value.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 17 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
Off-Balance-Sheet Items
The carrying amount and estimated fair value of off-balance-sheet
items were not material at December 31, 2000.
The carrying amount and estimated fair values of financial instruments
as of December 31 are as follows:
2000 1999
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Cash and due from
banks $ 7,061,961 $ 7,061,961 $ 7,312,241 $7,312,241
Interest bearing
deposits 6,360,931 6,360,931 2,436,271 2,436,271
Federal funds
sold 7,039,508 7,039,508 2,702,633 2,702,633
Securities held to
maturity 2,228,390 2,233,856 3,176,547 3,175,918
Securities available
for sale 22,835,324 22,835,324 25,892,783 25,892,783
Other investments 763,050 763,050 745,550 745,550
Loans, net 187,774,752 187,498,412 165,295,723 164,368,631
Interest
receivable 1,901,296 1,901,296 1,627,874 1,627,874
Financial Liabilities:
Demand and savings
deposits 79,663,291 79,663,291 73,908,182 73,908,182
Term deposits 136,907,948 137,101,109 118,436,806 117,846,983
Borrowed money 4,009,319 3,964,810 2,567,958 2,346,150
Interest payable 842,979 842,979 663,522 663,522
NOTE 18 REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier
I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2000, that the Company meets all capital
adequacy requirements to which it is subject.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 18 REGULATORY MATTERS (CONTINUED):
To be categorized as well capitalized the Company must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events
that management believes have changed the Company's category from a
well capitalized status.
The Company's actual capital ratios are presented in the following
table:
Actual Regulatory Requirements
------- -----------------------
December Adequately Well
2000 1999 Capitalized Capitalized
Total risk-based ratio 16.03% 17.35% 8.00% 10.00%
Tier 1 risk-based ratio 15.17% 16.60% 4.00% 6.00%
Total assets leverage
ratio 10.57% 10.99% 4.00% 5.00%
Capital ratios and amounts are applicable both at the individual bank
level and on a consolidated basis. At December 31, 2000, both
subsidiary banks had capital levels in excess of minimum requirements.
As such, both banks qualified as "well capitalized banks" for FDIC
insurance purposes and thus were charged the minimum rate for
insurance coverage.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
Assets December 31,
----------------
2000 1999
------------- ------
Cash $ 81,062 $ 34,476
Investment in subsidiaries 26,121,840 24,028,470
Other investments 32,584 100,000
Other assets 671 1,115
Income taxes receivable 237,959 113,268
---------- -----------
Total Assets $26,474,116 $ 24,277,329
========== ===========
Liabilities
Due to subsidiaries $ 206,502 $ 53,282
---------- -----------
Total Liabilities 206,502 53,282
---------- -----------
Stockholders' Equity
Common stock, par value $5 per share
3,000,000 and 1,000,000 shares
authorized at December 31, 2000
and 1999, respectively; 546,764
shares issued $ 2,733,820 $ 2,733,820
Surplus 1,661,987 1,661,987
Retained earnings 22,825,747 21,067,191
Other accumulated comprehensive
income 38,761 (246,250)
---------- -----------
27,260,315 25,216,748
Less treasury stock (at cost, 44,866
Shares in 2000 and 1999) (992,701) (992,701)
---------- -----------
Total Stockholders' Equity 26,267,614 24,224,047
---------- -----------
Total Liabilities and Stockholders'
Equity $26,474,116 $ 24,277,329
========== ===========
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended December 31,
------------------------------
2000 1999 1998
--------------------------------
Income
Dividends from subsidiaries$ 722,354 $ 666,652 $ 623,525
Other dividends 1,680 735
----------- ---------- ----------
Total 722,354 668,332 624,260
----------- ---------- ----------
Expenses
Professional fees 48,988 34,056 27,032
Directors' fees 32,650 25,500 24,050
Other expenses 31,172 33,905 36,749
----------- ---------- ----------
Total 112,810 93,461 87,831
----------- ---------- ----------
Net income before income tax
benefit and undistributed
income of subsidiaries 609,544 574,871 536,429
Income tax benefit 43,006 37,866 29,360
----------- ---------- ----------
Income before undistributed
income of subsidiaries 652,550 612,737 565,789
Undistributed income of
subsidiaries 1,728,361 1,712,632 1,446,093
----------- ---------- ----------
Net Income 2,380,911 2,325,369 2,011,882
Retained earnings,
Beginning of period 21,067,191 19,324,019 17,854,185
Dividends paid (622,355) (582,197) (542,048)
---------- ----------- ---------
Retained Earnings,
End of Period $ 22,825,747 $21,067,191 $19,324,019
=========== ========== ==========
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HIGHLANDS BANKSHARES, INC.
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------
2000 1999 1998
------------------------------
Cash Flows from Operating Activities:
Net income $ 2,380,911 $2,325,369 $ 2,011,882
Adjustments
Undistributed subsidiary
income (1,728,361) (1,712,632) (1,446,093)
Depreciation 446 624 583
Increase in other
investments (12,584)
Increase in payables 153,220 52,809 473
Increase in receivables (124,691) (65,251) (25,413)
Increase in other assets (2,325)
---------- --------- ----------
Net Cash Provided by Operating
Activities 668,941 600,919 539,107
---------- --------- ----------
Cash Flows from Financing Activities:
Dividends paid (622,355) (582,197) (542,048)
---------- --------- ----------
Net Cash Used in Financing
Activities (622,355) (582,197) (542,048)
---------- --------- ----------
Net Increase (Decrease) in Cash 46,586 18,722 (2,941)
Cash, Beginning of Year 34,476 15,754 18,695
---------- --------- ----------
Cash, End of Year $ 81,062 $ 34,476 $ 15,754
========== ========= ==========
46
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Highlands Bankshares, Inc.
Petersburg, West Virginia
We have audited the accompanying consolidated balance sheets of Highlands
Bankshares, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Highlands
Bankshares, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 2000, in conformity with
generally accepted accounting principles.
S. B. Hoover & Company, L.L.P.
January 19, 2001
Harrisonburg, Virginia
47
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 20, 2001.
Item 10. Executive Compensation
We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 20, 2001.
Item 11. Security Ownership of Certain Beneficial Owners and Management
We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 20, 2001.
Item 12. Certain Relationships and Related Transactions
We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 20, 2001.
Most of the directors, partnerships of which they may be general partners
and corporations of which they are officers or directors, maintain normal
banking relationships with the Bank. Loans made by the Bank to such persons or
other entities were made only in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectibility or present other unfavorable
features. See Note 14 of the consolidated financial statements.
John VanMeter is a partner with the law firm of VanMeter and VanMeter,
which has been retained by the Company as legal counsel and it is anticipated
that the relationship will continue. Jack H. Walters is a partner with the law
firm of Walters, Krauskopf & Roth, which provides legal counsel to the Company
and it is anticipated that the relationship will continue.
Part IV
Item 13. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
2 Not applicable
3 (i) Articles of Incorporation of Highlands
Bankshares, Inc. are incorporated by reference to
Appendix C to Highlands Bankshares, Inc.'s Form
S-4 filed October 20, 1986.
Amendments to the original Articles of Incorporation
are incorporated by reference; filed as Exhibit 3(i)
with 1997 10KSB.
48
Item 13. Exhibits and Reports on Form 8-K (Continued)
a) Exhibits (Continued)
--------------------
Exhibit No. Description
3 (ii) Bylaws of Highlands Bankshares, Inc. are
incorporated by reference to Appendix D to Highland
Bankshares, Inc.'s Form S-4 filed October 20, 1986.
Amendments to the original Bylaws are
incorporated by reference; filed as Exhibit 3(ii)
with 1997 10KSB
4 Not applicable
9 Not applicable
10 Not applicable
11 Not applicable
12 Not applicable
16 Not applicable
18 Not applicable
21 Subsidiary listing of the Registrant is attached
on Page 50
22 Not applicable
23 Consent of Certified Public Accountant attached
on Page 51
24 Not applicable
27 Financial Data Schedule attached
28 Not applicable
b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 2000.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HIGHLANDS BANKSHARES, INC.
By LESLIE A. BARR
--------------
Leslie A. Barr
President, Chief
Executive Officer
Date March 27, 2001
--------------
By CLARENCE E. PORTER
------------------
Clarence E. Porter
Secretary/Treasurer
Date March 27, 2001
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the date indicated.
Signature Title Date
LESLIE A. BARR March 27, 2001
- --------------------------- --------------
Leslie A. Barr President
& Chief Executive Officer
Director
THOMAS B. MCNEIL, SR. March 27, 2001
- --------------------------- --------------
Thomas B. McNeil, Sr. Director
George B. Moomau Director
CLARENCE E. PORTER March 27, 2001
- --------------------------- --------------
Clarence E. Porter Secretary/Treasurer
Courtney R. Tusing Director
JOHN G. VANMETER March 27, 2001
- --------------------------- --------------
John G. VanMeter Chairman of the Board
Director
Jack H. Walters Director
L. KEITH WOLFE March 27, 2001
- --------------------------- --------------
L. Keith Wolfe Director