>MESSAGE FROM MANAGEMENT
During the course of 2000 your company attained record earnings for the 8th
consecutive year, launched ovbc.com, opened a SuperBank, and relocated a Loan
Central office.
OVBC attained record net income for the 8th consecutive year at $4.4 million, an
increase of 2.5%. Net income per share of $1.25 also represented an increase of
2.5%. Cash dividends per share for 2000 totaled $.59, an 11.3% increase from the
$.53 per share paid in 1999.
Much was accomplished during the past year as you will read about in the "Year
in Review." The most exciting was the ovbc.com Web portal and NetTeller Internet
banking. We are no longer bound by bricks and mortar nor any one geographical
area. In fact, banking is now in the age of clicks and mortar.
OVBC is constantly growing; however, we never forget the ones who built the
foundation for this growth. During the past year we lost two long-time members
of the OVBC family, Director Frank Mills and OVB Officer Larry Lee. These two
individuals were very different, yet they worked toward a common goal, success
for your company. If you love the company you work for, it makes sense that you
want to help it succeed. Even though Dr. Keith Brandeberry and Art Hartley, Sr.
retired from the Board of Directors in 2000, they now actively serve as
consultants on our Directors Emeritus Advisory Board.
This dedication has been demonstrated many times over the course of the last
year, not only by our employees, but also by our shareholders and customers.
Thank you for your support in 2000 and your continued commitment during 2001.
Sincerely,
James L. Dailey
Chairman of the Board
Jeffrey E. Smith
President and Chief Executive Officer
>THE YEAR IN REVIEW
During the year 2000, your company focused on a single, yet formidable
task...shrinking the world and expanding the service.
Innovative solutions such as NetTeller Internet banking, online Bill Pay, the
ovbc.com Web portal, and Bounce Protection took shape during the past year.
These initiatives were designed to enable our customers to do more, do it when
they want, and from where they want.
"By year end, only six months after its debut, over two thousand OVB customers
had already taken advantage of the Bank's NetTeller real-time account access,
making over 102 thousand transactions online," said Katrinka Hart, senior vice
president, Retail Bank Group.
Web-based Cash Management and the Merchant Marketplace Storefront were also
introduced in 2000. As of December 31, 2000, over 870 consumers from three
countries were active members of ovbc.com. "Ohio Valley Bank is now in the
position to help our business customers establish a global presence on the
Internet," said David Shaffer, senior vice president, Commercial Bank Group.
"We used the past year to strengthen and expand relationships which benefit the
Bank's use of technology," said Sandy Edwards, senior vice president, Financial
Bank Group. Self-service products such as Business Cash Management, NetTeller
and Bill Pay have empowered change.
Changing the way we serve our customers was not limited to Ohio Valley Bank.
This idea quickly spread through the entire Banc Corp. Loan Central brought this
vision to life in its Jackson (OH) market area.
"In Jackson, expanding service meant improving the location to make it more
convenient for customers," said Cherie Barr, president of Loan Central, Inc.
Soon after Jackson's famous Apple Festival, Loan Central was moved to a prime
location, just across from the post office, with ample free parking.
Management appointments made during last year's Annual Shareholders' Meeting
deepened your company's talent pool to achieve this vision. Jeff Smith was
elected to the position of Chief Executive Officer of Ohio Valley Bank. Rich
Mahan was elected to the position of secretary of your company and Larry Miller
to the role of treasurer.
Two new OVB senior vice presidents, Sandy Edwards and David Shaffer, were placed
into key roles, leading the Financial and Commercial Bank Groups, respectively.
Judy Hall was promoted to assistant vice president. Two new officers, Marilyn
Kearns and Kim Williams, were designated within the Bank.
Just a week after these appointments were announced, Ohio Valley Bank opened a
new SuperBank inside the 29th Street Wal-Mart in Huntington, W.Va.
"These in-store banks have steadily grown in popularity due to the simple fact
that the SuperBanks are open when our competitors are not," said Mario
Liberatore, senior vice president, West Virginia Bank Group.
OVB officers are respected in their field by their peers. In May, President and
CEO Jeff Smith was appointed to the Federal Reserve's Community Bank Advisory
Council. The Council was created to help inform the Cleveland Fed about issues
of interest and concern to community and independent bankers in the Fourth
Federal Reserve District.
In October, Vice President Patty Davis was appointed to the Jack Henry &
Associates national Users Group Board and elected secretary of the group, which
represents hundreds of banks nationwide and directs the future of banking
technology.
"In addition, many upper level managers instructed bank-related courses through
the OVBC Continuing Education Program. The first graduates of this program
received their diplomas in 2000," said Sue Ann Bostic, senior vice president,
Administrative Services group.
Change is not only happening at Ohio Valley Bank, but throughout the entire
industry. Much of this change is a result of the Gramm-Leach-Bliley (Financial
Modernization) Act. Under this new legislation there is vast potential for
creating new products and services while remaining an independent community
bank.
Your company used this new legislation to seize a new business opportunity. On
October 5th, OVBC joined forces with the financial companies of four other
community banks to purchase a 50% ownership in ProFinance Holdings Corporation.
ProFinance was formed to purchase Century Surety Company, a Columbus based
insurance underwriter and reinsurance company.
In addition to the return on our investment, we will assist the company to
expand into new areas by offering products that could be utilized by our banks
in the future.
As 2001 unfolds, it is clear that Ohio Valley Bank is part of a new breed of
community banks that are positioned to reach the entire globe.
FINANCIAL HIGHLIGHTS
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
NET INCOME ($000) $ 4,400 $ 4,292 $ 4,130 $ 3,782 $ 3,349
TOTAL ASSETS ($000) $561,658 $522,057 $447,448 $379,088 $355,986
INCOME PER SHARE $ 1.25 $ 1.22 $ 1.18 $ 1.10 $ 1.00
DIVIDENDS PER SHARE $ .59 $ .53 $ .44 $ .42 $ .40
Description of Business
- -----------------------
Ohio Valley Banc Corp commenced operations on October 23, 1992 as a one-bank
holding company with The Ohio Valley Bank Company being the wholly-owned
subsidiary. The Company's headquarters are located at 420 Third Avenue in
Gallipolis, Ohio.
The Ohio Valley Bank Company was organized on September 24, 1872. The Bank is
insured under the Federal Deposit Insurance Act and is chartered under the
banking laws of the State of Ohio. The company currently operates sixteen
offices in Ohio and West Virginia.
In April 1996, the Banc Corp opened a consumer finance company operating under
the name of Loan Central, Inc. with offices in Gallipolis, South Point, Jackson
and Waverly, Ohio.
Form 10-K
- ---------
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, will be forwarded without charge to any stockholder
upon written request to: Ohio Valley Banc Corp, Attention: E. Richard Mahan,
Secretary, 420 Third Avenue, P.O. Box 240, Gallipolis, OH 45631.
OHIO VALLEY BANC CORP. DIRECTORS
Phil A. Bowman Warren F. Sheets
Mining Consultant and Developer Attorney
W. Lowell Call Jeffrey E. Smith
Vice President of Sausage Production, President and Chief Executive Officer,
Bob Evans Farms, Inc. Ohio Valley Banc Corp.
James L. Dailey Lannes C. Williamson
Chairman of the Board, President,
Ohio Valley Banc Corp. L. Williamson Pallets, Inc.
Robert H. Eastman Thomas E. Wiseman
President, President,
Ohio Valley Supermarkets, Inc. The Wiseman Agency, Inc.
Merrill L. Evans
Farmer,
President, Evans Enterprises, Inc.
OHIO VALLEY BANC CORP. OFFICERS
Jeffrey E. Smith Sandra L. Edwards
President and Vice President
Chief Executive Officer
E. Richard Mahan David L. Shaffer
Senior Vice President and Vice President
Secretary
Larry E. Miller, II Cherie A. Barr
Senior Vice President and Vice President
Treasurer
Sue Ann Bostic Katrinka V. Hart
Vice President Vice President
Harold A. Howe Mario Liberatore
Vice President Vice President
Cindy H. Johnston Paula W. Salisbury
Assistant Secretary Assistant Secretary
LOAN CENTRAL OFFICERS
Jeffrey E. Smith Renae L. Hughes
Chairman of the Board Manager, Jackson Office
Cherie A. Barr T. Joe Wilson
President Manager, South Point Office
Timothy R. Brumfield Joseph I. Jones
Secretary and Manager, Manager, Waverly Office
Gallipolis Office
OHIO VALLEY BANK COMPANY DIRECTORS
Phil A. Bowman Lannes C. Williamson
W. Lowell Call Steven B. Chapman
CPA
James L. Dailey Robert H. Eastman
Merrill L. Evans Thomas E. Wiseman
Harold A. Howe Warren F. Sheets
President, Ohio Valley
Financial Services
Jeffrey E. Smith Wendell B. Thomas
Retired Bank Executive
DIRECTORS EMERITUS
Morris E. Haskins Charles C. Lanham
Retired Bank Executive Governmental Relations
C. Leon Saunders Keith R. Brandeberry
Retired Bank Executive Physician
Art E. Hartley, Sr.
Chairman of the Board,
City Ice and Fuel, Inc.
OHIO VALLEY BANK COMPANY OFFICERS
Jeffrey E. Smith Katrinka V. Hart
President and Senior Vice President,
Chief Executive Officer Retail Bank Group
E. Richard Mahan David L. Shaffer
Executive Vice President and Senior Vice President,
Secretary Commercial Bank Group
Larry E. Miller, II Sue Ann Bostic
Executive Vice President and Senior Vice President,
Treasurer Administrative Services Group
Patrick H. Tackett Mario P. Liberatore
Vice President, Senior Vice President,
Western Division Branch Administrator West Virginia Bank Group
Patricia L. Davis Sandra L. Edwards
Vice President, Senior Vice President,
Research & Technical Applications Financial Bank Group
Hugh H. Graham, Jr. Bryan W. Martin
Vice President, Vice President,
Superbank Division Facilities and Technical Services
Jennifer L. Osborne Richard D. Scott
Vice President, Vice President,
Retail Lending Trust
Judy K. Hall Tom R. Shepherd
Assistant Vice President, Vice President,
Training and Educational Development Marketing
Rick A. Swain Molly K. Tarbett
Assistant Vice President, Vice President,
Region Manager Pike County Retail Operations
Darren R. Blake Robert T. Hennesy
Assistant Vice President, Assistant Vice President,
Network Administrator Retail Indirect Lending Manager
Phyllis P. Wilcoxon Philip E. Miller
Assistant Vice President, Assistant Vice President,
Shareholder Relations Region Manager Franklin County
Scott W. Shockey Timothy V. Stevens
Assistant Vice President, Assistant Vice President,
Comptroller Region Manager Cabell County
Kyla Carpenter Kimberly R. Williams
Assistant Cashier, Assistant Cashier,
Marketing Officer EDP Officer
Brenda G. Henson Keith A. Johnson
Assistant Cashier, Assistant Cashier,
Manager Customer Service Collections Manager
Dians L. Parks Christopher S. Petro
Assistant Cashier, Assistant Cashier,
Internal Auditor Regulatory Reporting Manager
Linda L. Plymale Richard P. Speirs
Assistant Cashier, Assistant Cashier,
Operations Officer Maintenance Technical Supervisor
Stephanie L. Stover Cindy H. Johnston
Assistant Cashier Assistant Secretary
Retail Lending Operations Manager
Marilyn Kearns Paula W. Salisbury
Assistant Cashier, Assistant Secretary
Director of Human Resources
WEST VIRGINIA ADVISORY BOARD
Anna P. Barnitz Richard L. Handley
Business Manager/Treasurer Educator,
Bob's Market and Greenhouses, Inc. Mason County Board of Education
R. Raymond Yauger Gregory K. Hartley
President, President,
Yauger Farm Supply, Inc. City Ice and Fuel, Inc.
Charles C. Lanham Mario P. Liberatore
Advisory Board Chairman and
Senior Vice President W.V. Bank Group
John C. Musgrave Trenton M. Stover
West Virginia Lottery Director CPA/Owner,
Trenton Stover CPA
Lannes C. Williamson
SELECTED FINANCIAL DATA
Years Ended December 31
SUMMARY OF OPERATIONS: 2000 1999 1998 1997 1996
(dollars in thousands, except per share data)
Total interest income $ 45,195 $ 40,006 $ 35,191 $ 31,453 $ 28,252
Total interest expense 24,065 18,837 15,691 14,517 12,856
Net interest income 21,130 21,169 19,500 16,936 15,396
Provision for loan losses 1,890 2,303 2,295 1,245 1,328
Total other income 3,858 3,132 2,760 1,860 1,419
Total other expenses 16,978 16,060 14,201 12,293 10,738
Income before income taxes 6,120 5,938 5,764 5,258 4,749
Income taxes 1,720 1,646 1,634 1,476 1,400
Net income 4,400 4,292 4,130 3,782 3,349
PER SHARE DATA(1):
Net income per share $ 1.25 $ 1.22 $ 1.18 $ 1.10 $ 1.00
Cash dividends per share $ .59 $ .53 $ .44 $ .42 $ .40
Weighted average number
of shares outstanding 3,516,205 3,530,203 3,502,366 3,426,600 3,341,274
AVERAGE BALANCE SUMMARY:
Total loans $432,165 $382,353 $305,392 $271,535 $248,833
Securities (2) 74,733 73,783 74,478 73,303 76,907
Deposits 428,874 376,050 319,493 304,296 290,790
Shareholders' equity 42,773 41,730 38,639 34,449 30,958
Total assets 544,306 488,632 408,482 369,552 342,588
PERIOD END BALANCES:
Total loans $448,303 $411,158 $347,130 $280,267 $264,660
Securities (2) 76,402 72,186 72,419 76,711 71,135
Deposits 432,371 405,331 327,317 306,037 294,325
Shareholders' equity 44,492 42,708 40,680 36,834 32,874
Total assets 561,658 522,057 447,448 379,088 355,986
KEY RATIOS:
Return on average assets .81% .88% 1.01% 1.02% .98%
Return on average equity 10.29% 10.29% 10.69% 10.98% 10.82%
Dividend payout ratio 47.14% 43.73% 37.13% 37.81% 39.53%
Average equity to
average assets 7.86% 8.54% 9.46% 9.32% 9.04%
(1) Restated for stock splits as appropriate.
(2) Securities include interest-bearing balances with banks.
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31 2000 1999
----------------- ---- ----
(dollars in thousands)
ASSETS
Cash and cash equivalents 14,569 19,000
Interest-bearing balances with banks 816 806
Securities available-for-sale 59,819 55,371
Securities held-to-maturity 15,767 16,009
(estimated fair value: 2000-$16,111, 1999-$15,892)
Total Loans 448,303 411,158
Less: Allowance for loan losses (5,385) (5,055)
-------- --------
Net Loans 442,918 406,103
Premises and equipment, net 9,285 9,888
Accrued income receivable 4,104 3,298
Intangible assets, net 1,396 1,412
Other assets 12,984 10,170
-------- --------
Total assets $561,658 $522,057
======== ========
LIABILITIES
Noninterest-bearing deposits $ 47,661 $ 46,444
Interest-bearing deposits 384,710 358,887
-------- --------
Total Deposits 432,371 405,331
Securities sold under agreements to repurchase 18,345 16,788
Other borrowed funds 53,622 51,231
Obligated mandatorily redeemable capital securities
of subsidiary trust 5,000
Accrued liabilities 7,828 5,999
-------- --------
Total liabilities 517,166 479,349
-------- --------
SHAREHOLDERS' EQUITY
Common stock ($1 stated value: 10,000,000 shares
authorized; 2000 - 3,559,770 shares issued,
1999 - 3,548,572 shares issued) 3,560 3,549
Additional paid-in-capital 28,760 28,454
Retained earnings 13,817 11,491
Accumulated other comprehensive income (loss) 436 (597)
Treasury stock at cost (2000 - 72,489 shares,
1999 - 5,589 shares) (2,081) (189)
-------- --------
Total shareholders' equity 44,492 42,708
-------- --------
Total liabilities and shareholders' equity $561,658 $522,057
======== ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 2000 1999 1998
------------------------------- ---- ---- ----
(dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees $40,470 $35,539 $30,550
Securities:
Taxable 3,377 3,200 3,212
Tax exempt 793 826 794
Dividends 313 290 245
Other interest 242 151 390
------- ------- -------
45,195 40,006 35,191
Interest expense:
Deposits 20,367 15,602 13,489
Repurchase agreements 859 510 685
Other borrowed funds 2,671 2,725 1,517
Obligated mandatorily redeemable capital
securities of subsidiary trust 168
------- ------- -------
24,065 18,837 15,691
------- ------- -------
Net interest income 21,130 21,169 19,500
Provision for loan losses 1,890 2,303 2,295
------- ------- -------
Net interest income after provision
for loan losses 19,240 18,866 17,205
------- ------- -------
Noninterest income:
Service charges on deposit accounts 2,016 1,237 969
Trust fees 217 225 212
Income from bank owned insurance 482 407 379
Net gain on sale of
available-for-sale securities 317 442
Other 1,143 946 758
------- ------- -------
3,858 3,132 2,760
------- ------- -------
Noninterest expense:
Salaries and employee benefits 9,300 9,190 8,089
Occupancy expense 1,337 1,041 764
Furniture and equipment expense 1,253 1,115 904
Corporation franchise tax 385 356 368
Data processing expense 480 316 346
Other 4,223 4,042 3,730
------- ------- -------
16,978 16,060 14,201
------- ------- -------
Income before income taxes 6,120 5,938 5,764
Provision for income taxes 1,720 1,646 1,634
------- ------- -------
NET INCOME $ 4,400 $ 4,292 $ 4,130
======= ======= =======
Earnings per share $ 1.25 $ 1.22 $ 1.18
======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
Accumulated
Other Total
Common Retained Comprehensive Treasury Shareholders'
(dollars in thousands, except per Stock Surplus Earnings Income Stock Equity
share data) ----- ------- -------- ------ ----- ------
BALANCES AT JANUARY 1, 1998 $ 1,876 $26,275 $ 8,113 $ 570 $36,834
Comprehensive income:
Net income 4,130 4,130
Net change in unrealized gain
on available-for-sale securities (103) (103)
-------
Total comprehensive income 4,027
Common Stock split, 50% 906 (906)
Cash paid in lieu of fractional
shares in stock split (7) (7)
Common Stock issued, 5,450 shares 5 223 228
Common Stock issued through
dividend reinvestment, 31,196 shares 31 1,100 1,131
Cash dividends, $.44 per share (1,533) (1,533)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 2,818 27,598 9,797 467 40,680
Comprehensive income:
Net income 4,292 4,292
Cumulative effect of securities
transfers, net 167 167
Net change in unrealized gain
on available-for-sale securities (1,231) (1,231)
-------
Total comprehensive income 3,228
Common Stock split, 25% 706 (706)
Cash paid in lieu of fractional
shares in stock split (15) (15)
Common Stock issued, 7,500 shares 8 241 249
Common Stock issued through
dividend reinvestment, 16,756 shares 17 615 632
Cash dividends, $.53 per share (1,877) (1,877)
Shares acquired for treasury, 5,589 shares $ (189) (189)
------- ------- ------- ------- -------- -------
BALANCES AT DECEMBER 31, 1999 3,549 28,454 11,491 (597) (189) 42,708
Comprehensive income:
Net income 4,400 4,400
Net change in unrealized gain
on available-for-sale securities 1,033 1,033
-------
Total comprehensive income 5,433
Common Stock issued through
dividend reinvestment, 11,198 shares 11 306 317
Cash dividends, $.59 per share (2,074) (2,074)
Shares acquired for treasury, 66,900 shares $(1,892) (1,892)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 2000 $ 3,560 $28,760 $13,817 $ 436 $(2,081) $44,492
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2000 1999 1998
------------------------------- ---- ---- ----
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,400 $ 4,292 $ 4,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,447 1,157 947
Net amortization and accretion of securities 99 171 137
Amortization of intangible assets 129 30
Deferred tax benefit (292) (262) (384)
Provision for loan losses 1,890 2,303 2,295
Contribution of common stock to ESOP 249 228
FHLB stock dividend (318) (280) (190)
Net gain on sale of available-for-sale securities (317) (442)
Change in accrued income receivable (806) (575) (220)
Change in accrued liabilities 1,829 1,357 735
Change in other assets (2,262) (1,873) 568
------- ------- -------
Net cash provided by operating activities 6,116 6,252 7,804
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available-for-sale 6,749 10,587 9,300
Purchases of securities available-for-sale (9,349) (13,438) (2,917)
Proceeds from maturities of securities
held-to-maturity 2,628 2,841 12,850
Purchases of securities held-to-maturity (2,450) (1,347) (18,942)
Proceeds from sale of equity securities 323 1,075
Change in interest-bearing deposits in other banks (10) (11) 3,128
Net increase in loans (38,705) (65,553) (68,271)
Purchases of premises and equipment (844) (2,686) (1,981)
Purchases of insurance contracts (905) (460) (580)
------- ------- -------
Net cash used in investing activities (42,886) (69,744) (66,338)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits 27,040 58,653 21,280
Cash and cash equivalents received in assumption of
deposits, net of assets acquired 19,361
Cash dividends (2,074) (1,877) (1,533)
Cash paid in lieu of fractional shares in stock split (15) (7)
Proceeds from issuance of common stock 317 632 1,131
Purchases of treasury stock (1,892) (189)
Change in securities sold under agreements to repurchase 1,557 (2,278) 6,235
Proceeds from obligated mandatorily redeemable
capital securities of subsidiary trust 5,000
Proceeds from long-term borrowings 30,250 8,500 35,164
Repayment of long-term borrowings (25,629) (9,818) (8,498)
Change in other short-term borrowings (2,230) (3,194) 9,598
------- ------- -------
Net cash used in financing activities 32,339 69,775 63,370
------- ------- -------
CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents (4,431) 6,283 4,836
Cash and cash equivalents at beginning of year 19,000 12,717 7,881
------- ------- -------
Cash and cash equivalents at end of year $14,569 $19,000 $12,717
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $22,456 $17,496 $15,578
Income taxes 1,655 2,075 1,715
See accompanying notes to consolidated financial statements
Note A - Summary of Significant Accounting Policies
Unless otherwise indicated, amounts are in thousands, except per share data.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Ohio Valley Banc Corp. (the Company) and its wholly-owned
subsidiaries, The Ohio Valley Bank Company (the Bank) and Loan Central, a
consumer finance company. All significant intercompany balances and transactions
have been eliminated.
Industry Segment Information: The Company is engaged in the business of
commercial and retail banking and trust services, with operations conducted
through 20 offices located in central and southeastern Ohio as well as western
West Virginia. These communities are the source of substantially all of the
Company's deposit, loan and trust services. The majority of the Company's income
is derived from commercial and retail business lending activities. Management
considers the Company to operate in one segment, banking.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Areas involving the use of management's estimates and
assumptions that are more susceptible to change in the near term involve the
allowance for loan losses, the fair value of certain securities, the fair value
of financial instruments and the determination and carrying value of impaired
loans.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
noninterest-bearing deposits with banks and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods. The Company reports
net cash flows for customer loan transactions, deposit transactions, short-term
borrowings and interest-bearing deposits with other financial institutions.
Securities: The Company classifies securities into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity and are reported
at amortized cost. Securities classified as available-for-sale include
marketable equity securities and other securities that management intends to
sell or that could be sold for liquidity, investment management or similar
reasons even if there is not a present intention of such a sale.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax. Other
securities such as Federal Home Loan Bank stock are carried at cost.
Premium amortization is deducted from, and discount accretion is added
to, interest income on securities using the level yield method. Gains and losses
are recognized upon the sale of specific identified securities on the completed
transaction basis. Securities are written down to fair value when a decline in
fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income is not reported when full loan repayment is in doubt, typically when the
loan is impaired or payments are past due over 90 days. Payments received on
such loans are reported as principal reductions.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are probable based on past loss experience, general economic
conditions, information about specific borrower situations, including their
financial position and collateral value, and other factors and estimates which
are subject to change over time. While management may periodically allocate
portions of the allowance for specific problem situations, the entire allowance
is available for any charge-offs that occur. A loan is charged off by management
as a loss when deemed uncollectable, although collection efforts continue and
future recoveries may occur.
Loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one-to-four family residences,
residential construction loans, credit card and automobile, home equity and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally moved to
nonaccrual status when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectable. This typically occurs when the loan is 120 or more days
past due.
Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk:
The Company, through its subsidiaries, grants residential, consumer and
commercial loans to customers located primarily in the southeastern Ohio and
western West Virginia areas.
The following represents the composition of the loan portfolio at December 31,
2000:
% of Total Loans
----------------
Real Estate loans ............................ 46.78%
Commercial and industrial loans............... 31.19%
Consumer loans ............................... 21.86%
All other loans .............................. .17%
-------
100.00%
=======
Approximately 6.25% of total loans are unsecured.
The Bank, in the normal course of its operations, conducts business
with correspondent financial institutions. Balances in correspondent accounts,
investments in federal funds, certificates of deposit and other short-term
securities are closely monitored to ensure that prudent levels of credit and
liquidity risks are maintained. At December 31, 2000, the Bank's primary
correspondent balance was $6,952 at the Federal Reserve Bank, Cleveland, Ohio.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the declining balance and
straight-line methods over the estimated useful lives of the various assets.
Maintenance and repairs are expensed and major improvements are capitalized.
Other Real Estate: Real estate acquired through foreclosure or deed-in-lieu of
foreclosure is included in other assets. Such real estate is carried at the
lower of investment in the loan or estimated fair value of the property less
estimated selling costs. Any reduction to fair value at the time of acquisition
is accounted for as a loan charge-off. Any subsequent reduction in fair value is
recorded as a loss on other assets. Costs incurred to carry other real estate
are charged to expense. Other real estate owned totaled $34 at December 31, 2000
and $30 at December 31, 1999. Transfers of loans to other real estate were $139
in 2000 and $163 in 1998. There were no transfers of loans to other real estate
in 1999.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may no be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Per Share Amounts: Earnings per share is based on net income divided by the
following weighted average number of shares outstanding during the periods:
3,516,205 for 2000, 3,530,203 for 1999 and 3,502,366 for 1998. The Company had
no dilutive securities outstanding for any period presented.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available-for-sale which are also recognized as separate
components of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Reclassifications: The consolidated financial statements for 1999 and 1998 have
been reclassified to conform with the presentation for 2000. Such
reclassifications had no effect on the net results of operations.
NOTE B - SECURITIES
The amortized cost and estimated fair value of securities as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2000 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $ 2,499 $ 9 $ 2,508
U.S. Government agency securities 50,127 711 $ (42) 50,796
Mortgage-backed securities 2,065 1 (18) 2,048
Marketable equity securities 4,467 4,467
------- ------ ----- -------
Total securities $59,158 $ 721 $ (60) $59,819
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
Obligations of states and
political subdivisions $15,503 $ 383 $ (25) $15,861
Mortgage-backed securities 264 1 (15) 250
------- ------ ----- -------
Total securities $15,767 $ 384 $ (40) $16,111
======= ====== ===== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $ 7,490 $ 21 $ (1) $ 7,510
U.S. Government agency securities 42,328 1 (807) 41,522
Mortgage-backed securities 2,307 (118) 2,189
Marketable equity securities 4,150 4,150
------- ------ ----- -------
Total securities $56,275 $ 22 $(926) $55,371
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
Obligations of states and
political subdivisions $15,690 $ 151 $(247) 15,594
Mortgage-backed securities 319 1 (22) 298
------- ------ ----- -------
Total securities $16,009 $ 152 $(269) $15,892
======= ====== ===== =======
On April 1, 1999, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 allows the company
a one time reclassification of securities held-to-maturity to classification as
available-for-sale or trading. The Company transferred securities with a par
value of $27,500 previously classified as held-to-maturity to available-for-sale
upon adoption. The unrealized gain, net of tax, on the securities transferred
totaled $167. The Company has no derivative or hedging activity covered by SFAS
No. 133.
Securities with a carrying value of approximately $63,488 at December 31,
2000 and $58,984 at December 31, 1999 were pledged to secure public deposits and
for other purposes as required or permitted by law.
The amortized cost and estimated fair value of debt securities at December
31, 2000, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain issuers may have the right to call
or prepay the debt obligations prior to their contractual maturities.
Available-for-Sale Held-to-Maturity
------------------ ----------------
Estimated Estimated
Amortized Fair Amortized Fair
Debt Securities: Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 8,524 $ 8,543 $ 2,013 $ 2,019
Due in one to five years 44,102 44,761 7,012 7,203
Due in five to ten years 3,525 3,606
Due after ten years 2,953 3,033
Mortgage-backed securities 2,065 2,048 264 250
------- ------- ------- -------
Total debt securities $54,691 $55,352 $15,767 $16,111
======= ======= ======= =======
There were no sales of debt and equity securities during 2000. Proceeds
from the sale of equity securities in 1999 were $323 with gross gains of $317
realized. Proceeds from the sale of equity securities during 1998 were $1,075
with gross gains of $459 and gross losses of $17 realized.
NOTE C - LOANS
Loans are comprised of the following at December 31:
2000 1999
---- ----
Real estate loans $209,724 $201,625
Commercial and industrial loans 139,826 119,585
Consumer loans 98,013 88,942
All other loans 740 1,006
-------- --------
Total Loans $448,303 $411,158
======== ========
NOTE D - ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses for
years ended December 31:
2000 1999 1998
---- ---- ----
Balance, beginning of year $5,055 $4,277 $3,390
Loans charged-off:
Real estate 92 41 110
Commercial 61 454 130
Consumer 1,642 1,298 1,433
------ ------ ------
Total loans charged-off 1,795 1,793 1,673
Recoveries of loans:
Real estate 4 13 40
Commercial 23 47
Consumer 231 232 178
------ ------ ------
Total recoveries of loans 235 268 265
Net loan charge-offs (1,560) (1,525) (1,408)
Provision charged to operations 1,890 2,303 2,295
------ ------ ------
Balance, end of year $5,385 $5,055 $4,277
====== ====== ======
Information regarding impaired loans is as follows:
2000 1999
---- ----
Balance of impaired loans $1,233 $1,413
====== ======
Portion of impaired loan balance for which
an allowance for credit losses is allocated $1,233 $1,413
====== ======
Portion of allowance for loan losses allocated
to the impaired loan balance $ 530 $ 600
====== ======
Average investment in impaired loans for the year $1,266 $1,570
====== ======
Interest on impaired loans was not material for years ending 2000, 1999 or
1998.
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment at December 31:
2000 1999
---- ----
Land $ 1,376 $ 1,375
Buildings 8,550 8,435
Furniture and equipment 7,512 6,784
------- -------
17,438 16,594
Less accumulated depreciation 8,153 6,706
------- -------
Total Premises and Equipment $ 9,285 $ 9,888
======= =======
The following is a summary of the future minimum lease payments for facilities
leased by the Company. Lease payments were $344 in 2000 and $255 in 1999.
2001 $ 328
2002 316
2003 277
2004 174
2005 121
Thereafter 222
------
$1,438
======
NOTE F - DEPOSITS
Following is a summary of interest-bearing deposits at December 31:
2000 1999
---- ----
NOW accounts $ 80,336 $ 74,447
Savings and Money Market 36,598 42,095
Time:
IRA accounts 34,683 34,938
Certificates of Deposit:
In denominations under $100,000 145,121 136,824
In denominations of $100,000 or more 87,972 70,583
-------- --------
Total time deposits 267,776 242,345
-------- --------
Total interest-bearing deposits $384,710 $358,887
======== ========
Following is a summary of total time deposits by remaining maturities at
December 31:
2000
------
Within one year $193,424
From one to two years 46,467
From two to three years 22,576
From three to four years 2,064
From four to five years 1,813
Thereafter 1,432
--------
Totals $267,776
========
NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Following is a summary of securities sold under agreements to repurchase at
December 31:
2000 1999
---- ----
Balance outstanding at period end $18,345 $16,788
------- -------
Weighted average interest rate at period end 5.28% 4.54%
------- -------
Average amount outstanding during the year $17,606 $13,961
------- -------
Approximate weighted average interest rate
during the year 4.88% 3.65%
------- -------
Maximum amount outstanding as of any month end $22,690 $16,788
------- -------
Securities underlying these agreements at
year-end were as follows:
Carrying value of securities $39,177 $36,326
------- -------
Fair Value $39,635 $35,793
------- -------
NOTE H - OTHER BORROWED FUNDS
Other borrowed funds at December 31, 2000 and 1999 are comprised of
advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal
Reserve Bank Notes.
FHLB Borrowings Promissory Notes FRB Notes Totals
--------------- ---------------- --------- -------
2000 $44,753 $ 5,594 $ 3,275 $53,622
1999 $38,746 $ 3,985 $ 8,500 $51,231
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $67,130
and $4,467 at December 31, 2000. Fixed rate FHLB advances mature through 2010
and have interest rates ranging from 4.88% to 7.08%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 6.50% to 7.25% and are due at various dates through a final maturity date of
May 29, 2002.
Scheduled principal payments over the next five years:
FHLB borrowings Promissory notes FRB Notes Total
--------------- ---------------- --------- -----
2001 $16,487 $5,589 $3,275 $25,351
2002 8,765 5 8,770
2003 4,581 4,581
2004 675 675
2005 121 121
Thereafter 14,124 14,124
------- ------ ------ -------
$44,753 $5,594 $3,275 $53,622
======= ====== ====== =======
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits required by law totaled $33,100 at December 31,
2000 and $24,000 at December 31, 1999. Various investment securities from the
Bank used to collateralize FRB notes totaled $9,165 at December 31, 2000 and
$9,225 at December 31, 1999.
NOTE I - OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUST
On September 7, 2000 the Company completed the issuance of $5,000 at 10.60%
obligated mandatorily redeemable capital securities of a subsidiary trust (Trust
Preferred Securities) through a newly formed, wholly-owned subsidiary, Ohio
Valley Statutory Trust I (the "Trust Issuer"). The Trust Issuer invested the
total proceeds from the sale of trust preferred securities in a long-term
subordinated debenture issued by the parent company with a fixed rate of 10.60%
and a maturity date of September 7, 2030. The parent company used the net
proceeds from the sale of the subordinated debenture to help continue the
Company's stock repurchases and provide additional capital to the Bank to
support growth. The trust preferred securities were unsecured at December 31,
2000. A description of the trust preferred securities currently outstanding at
December 31, 2000 is presented below:
Issuing Date of Interest Maturity Principal
Entity Issuance Rate Date Balance
- ------------------- ----------------- -------- ----------------- ---------
Ohio Valley September 7, 2000 10.60% September 7, 2030 $5,000
Statutory Trust I
NOTE J - INCOME TAXES
The provision for federal income taxes consists of the following components:
2000 1999 1998
---- ---- ----
Current tax expense $2,012 $1,908 $2,018
Deferred tax expense (benefit) (292) (262) (384)
------ ------ ------
Total federal income taxes $1,720 $1,646 $1,634
====== ====== ======
The sources of gross deferred tax assets and gross deferred tax liabilities
at December 31:
2000 1999
---- ----
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $1,486 $1,334
Deferred compensation 502 401
Unrealized loss on securities available-for-sale 307
Other 126 90
Items giving rise to deferred tax liabilities:
Investment accretion (34) (25)
Depreciation (56) (124)
FHLB stock dividends (439) (333)
Unrealized gain on securities available-for-sale (225)
Lease receivables (46)
Other (4) (8)
------ ------
Net deferred tax asset $1,356 $1,596
====== ======
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before taxes is as follows:
2000 1999 1998
---- ---- ----
Statutory tax $2,081 $2,019 $1,960
Effect of nontaxable interest
and dividends (278) (297) (298)
Nondeductible interest expense 49 46 46
Insurance contracts (139) (117) (110)
Other items 7 (5) 36
------ ------ ------
Total federal income taxes $1,720 $1,646 $1,634
====== ====== ======
There were no taxes attributable to gains on sale of securities in 2000.
Taxes attributable to gains on sale of securities totaled $108 in 1999 and $150
in 1998.
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. The Bank's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit, and financial
guarantees written, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for instruments recorded on the balance
sheet.
Following is a summary of such commitments at December 31:
Commitments to extend credit 2000 1999
----- -----
Fixed rate $ 811 $ 3,033
Variable rate 45,418 37,721
Standby letters of credit 5,906 9,072
The interest rate on fixed rate commitments ranged from 7.375% to 17.90% at
December 31, 2000.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. 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 bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income-producing commercial
properties.
There are various contingent liabilities that are not reflected in the
financial statements, including claims and legal action arising in the ordinary
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material effect on financial condition or results of operations.
The bank subsidiary of the Company is required to maintain average reserve
balances with the Federal Reserve Bank or as cash in the vault. The amount of
those reserve balances for the year ended December 31, 2000, was approximately
$6,088.
NOTE L - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies in which they are
affiliated were loan customers during 2000. A summary of activity on these
borrower relationships with aggregate debt greater than $60 is as follows:
Total loans at January 1, 2000 $14,457
New loans 5,974
Repayments (5,903)
Other changes (1,592)
-------
Total loans at December 31, 2000 $12,936
=======
Other changes include adjustment for loans applicable to one reporting period
that are excludable from the other reporting period. In addition, certain
directors, executive officers and companies in which they are affiliated were
recipients of promissory notes issued by the parent company in the amount of
$2,250.
NOTE M - EMPLOYEE BENEFITS
The Bank has a profit-sharing plan for the benefit of its employees and their
beneficiaries. Contributions to the plan are determined by the Board of
Directors. Contributions charged to expense were $146, $131 and $111 for 2000,
1999 and 1998.
The Company maintains an Employee Stock Ownership Plan (ESOP) covering
substantially all of its employees. The Company makes discretionary
contributions to the plan which are allocated to plan participants based on
relative compensation. The total number of shares held by the Plan, all of which
have been allocated to participant accounts were 167,598 and 178,872 at December
31, 2000 and 1999. In addition, the Bank made contributions to its ESOP Trust as
follows:
Years ended December 31
2000 1999 1998
---- ---- ----
Number of shares issued 7,500 5,450
===== ===== =====
Value of stock contributed $ 249 $ 228
Cash contributed $ 293 12
----- ----- -----
Total charged to expense $ 293 $ 261 $ 228
===== ===== =====
Life insurance contracts with a cash surrender value of $9,408 have been
purchased by the Company, the owner the of policies. The purpose of these
contracts was to replace a current group life insurance program for executive
officers and implement a supplemental retirement program. The cost of providing
the benefits to the participants of the supplemental retirement program is
expected to be offset by the earnings on the life insurance contracts.
NOTE N - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes for the years ended
December 31, are as follow:
2000 1999 1998
Unrealized holding gains (losses) on ---- ---- ----
available-for-sale securities $ 1,565 $(1,548) $ 286
Cumulative effect of securities transferred 253
Less: Reclassification adjustment for
gains (losses) later recognized in income 317 442
------- ------- -------
Net unrealized gain (losses) 1,565 (1,612) (156)
Tax effect 532 (548) (53)
------- ------- -------
Other comprehensive income $ 1,033 $(1,064) $(103)
======= ======= =======
NOTE O - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
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 and Short-term Investments: For short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Securities: For securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments.
Loans: The fair value of fixed rate loans is estimated by discounting 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. The
fair market value of commitments is not material at December 31, 2000 or 1999.
Deposit Liabilities: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: For
other borrowed funds, rates currently available to the Bank for debt with
similar terms and remaining maturities are used to estimate fair value. For
securities sold under agreements to repurchase, carrying value is a reasonable
estimate of fair value.
Accrued Interest Receivable and Payable: For accrued interest receivable and
payable, the carrying amount is a reasonable estimate of fair value.
In addition, other assets and liabilities that are not defined as financial
instruments were not included in the disclosures below, such as premises and
equipment and life insurance contracts.
The estimated fair values of the Company's financial instruments at December
31, are as follows:
2000 1999
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and short-term investments $ 15,385 $ 15,385 $ 19,806 $ 19,806
Securities 71,119 71,463 67,230 67,113
FHLB stock 4,467 4,467 4,150 4,150
Loans 442,918 445,730 406,103 410,373
Accrued interest receivable 4,104 4,104 3,298 3,298
Financial liabilities:
Deposits (432,371) (435,155) (405,331) (405,386)
Securities sold under agreements
to repurchase (18,345) (18,345) (16,788) (16,788)
Other borrowed funds (53,622) (53,539) (51,231) (50,141)
Obligated mandatorily redeemable
capital securities of subsidiary
trust (5,000) (5,167)
Accrued interest payable (6,096) (6,096) (4,487) (4,487)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgements regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments , and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE P - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgements by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action that
could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year-end, consolidated actual capital levels (in thousands) and minimum
required levels for the Company and Bank were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2000
Total capital (to risk weighted assets)
Consolidated $52,975 12.5% $34,012 8.0% $42,515 10.0%
The Ohio Valley Bank Company $48,391 12.4% $31,129 8.0% $38,912 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $47,660 11.2% $17,006 4.0% $25,509 6.0%
The Ohio Valley Bank Company $43,525 11.2% $15,565 4.0% $23,347 6.0%
Tier 1 capital (to average assets)
Consolidated $47,660 8.5% $22,488 4.0% $28,110 5.0%
The Ohio Valley Bank Company $43,525 7.9% $22,009 4.0% $27,511 5.0%
1999
Total capital (to risk weighted assets)
Consolidated $46,622 12.3% $30,238 8.0% $37,797 10.0%
The Ohio Valley Bank Company $42,495 11.5% $29,637 8.0% $37,047 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $41,893 11.1% $15,119 4.0% $22,678 6.0%
The Ohio Valley Bank Company $33,862 9.1% $14,819 4.0% $22,228 6.0%
Tier 1 capital (to average assets)
Consolidated $41,893 8.1% $20,707 4.0% $25,884 5.0%
The Ohio Valley Bank Company $33,862 6.6% $20,377 4.0% $25,471 5.0%
The Company and Bank at year-end 2000 were categorized as well capitalized.
Management is not aware of any event or circumstances subsequent to year-end
that would change the Company's or Bank's capital structure.
Dividends paid by the subsidiaries are the primary source of funds available
to the Company for payment of dividends to shareholders and for other working
capital needs. The payment of dividends by the subsidiaries to the Company is
subject to restrictions by regulatory authorities. These restrictions generally
limit dividends to the current and prior two years retained earnings. At
December 31, 2000, approximately $11,467 of the subsidiaries' retained earnings
were available for dividends under these guidelines. In addition to these
restrictions, as a practical matter, dividend payments cannot reduce regulatory
capital levels below minimum regulatory guidelines. These restrictions do not
presently limit the Company from paying dividends at its historical level.
NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Below is condensed financial information of Ohio Valley Banc Corp. In this
information, the parent's investment in subsidiaries is stated at cost plus
equity in undistributed earnings of the subsidiaries since acquisition. This
information should be read in conjunction with the consolidated financial
statements.
CONDENSED STATEMENTS OF CONDITION at December 31:
Assets 2000 1999
---- ----
Cash and cash equivalents $ 50 $ 50
Interest-bearing balances with subsidiaries 259 1,060
Investment in subsidiaries 47,045 36,205
Notes receivable - subsidiaries 5,947 9,455
Other assets 2,115 101
------- -------
Total assets $55,416 $46,871
======= =======
Liabilities
Notes Payable $ 5,576 $ 3,955
Subordinated debentures 5,155
Other liabilities 193 208
------- -------
Total liabilities 10,924 4,163
------- -------
Shareholders' Equity
Total shareholders' equity 44,492 42,708
------- -------
Total liabilities and shareholders' equity $55,416 $46,871
======= =======
CONDENSED STATEMENTS OF INCOME
Years ended December 31:
2000 1999 1998
---- ---- ----
Income:
Interest on deposits $ 33 $ 102 $ 107
Interest on loans 6 12 54
Interest on notes 474 502 386
Other operating income 19 3
Dividends from bank subsidiary 925 425 1,000
Expenses:
Interest on notes 343 263 196
Operating expenses 317 153 181
------ ------ ------
Income before federal income taxes and equity
in undistributed earnings of subsidiaries 797 625 1,173
Income tax benefit (expense) 42 (68) (85)
Equity in undistributed earnings of subsidiaries 3,561 3,735 3,042
------ ------ ------
Net Income $4,400 $4,292 $4,130
====== ====== ======
NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31: 2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $4,400 $4,292 $4,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries(3,561) (3,735) (3,042)
Change in other assets (2,014) (36) 1,198
Change in other liabilities (15) (8) 111
------ ------ ------
Net cash provided by operating activities (1,190) 513 2,397
------ ------ ------
Cash flows from investing activities:
Capital contributions to subsidiaries (6,090)
Proceeds from repayment of long-term note
from subsidiary 4,000
Change in other long-term investments (156)
Change in other short-term investments (645) (948) (4,434)
Change in subsidiary line of credit 153 (186) 1,750
Change in interest-bearing deposits 801 5,744 (6,562)
------ ------ ------
Net cash used in investing activities (1,937) 4,610 (9,246)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,155
Change in other short-term borrowings 1,621 (3,923) 7,003
Cash dividends paid (2,074) (1,877) (1,506)
Cash paid in lieu of fractional shares in stock split (15) (7)
Proceeds from issuance of common stock 317 881 1,359
Purchases of treasury stock (1,892) (189)
------ ------ ------
Net cash used in financing activities 3,127 (5,123) 6,849
------ ------ ------
Cash and cash equivalents:
Change in cash and cash equivalents 0 0 0
Cash and cash equivalents at beginning of year 50 50 50
------ ------ ------
Cash and cash equivalents at end of year $ 50 $ 50 $ 50
====== ====== ======
NOTE R - ACQUISITION AND INTANGIBLE ASSETS
On September 24, 1999, the Bank acquired from Huntington National Bank
(HNB) certain assets and assumed certain deposits and other liabilities in
accordance with a purchase and assumption agreement of the same date.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have been recorded
based on their estimated fair market value at the date of acquisition. A summary
of assets acquired and liabilities assumed follow:
Cash $ 428
Premises and equipment 885
Funds received from HNB 18,933
Goodwill 1,442
-------
Total assets $21,688
=======
Deposit liabilities $21,590
Accrued interest payable and
other liabilities 98
-------
Total liabilities $21,688
=======
Goodwill totaled $1,396 at December 31, 2000 and is being amortized over an
original term of 12 years on a straight line basis. Amortization expense for
goodwill totaled $129 for 2000 and $30 for 1999.
On December 15, 1998 Jackson Savings Bank, Jackson, Ohio was acquired in a
business combination accounted for as a pooling of interests. A total of 74,167
shares of the Company's common stock were issued in exchange for all of the
outstanding shares of Jackson and Jackson became a wholly owned subsidiary of
the Company. The consolidated financial statements have been restated to include
the effect of Jackson for all periods presented based on the historical amounts
reported by Jackson. The following is a summary of the separate results of
operations of the Company and Jackson for the year ended December 31, 1998.
Years ended December 31:
1998
Net interest income
Company $18,988
Jackson 512
-------
Combined $19,500
=======
Net income
Company $ 3,788
Jackson 342
-------
Combined $ 4,130
=======
On November 11, 2000, Jackson merged into the Bank with management's
objective of improving operational efficiencies.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(dollars in thousands, except per share data)
Quarters Ended
2000 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Total interest income $10,652 $11,100 $11,627 $11,816
Total interest expense 5,380 5,778 6,282 6,625
Net interest income 5,272 5,322 5,345 5,191
Provision for loan losses 302 407 456 725
Net Income 1,052 991 1,099 1,258
Net income per share $ .30 $ .28 $ .31 $ .36
1999
Total interest income $ 9,437 $ 9,890 $10,214 $10,465
Total interest expense 4,376 4,558 4,765 5,138
Net interest income 5,061 5,332 5,449 5,327
Provision for loan losses 448 557 438 861
Net Income 1,032 1,141 1,097 1,022
Net income per share $ .29 $ .33 $ .31 $ .29
1998
Total interest income $ 8,181 $ 8,720 $ 8,981 $ 9,309
Total interest expense 3,683 3,839 4,027 4,142
Net interest income 4,498 4,881 4,954 5,167
Provision for loan losses 357 535 491 912
Net Income 967 994 1,004 1,165
Net income per share $ .28 $ .28 $ .29 $ .33
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Ohio Valley Banc Corp.
Gallipolis, Ohio
We have audited the accompanying consolidated statements of condition of Ohio
Valley Banc Corp., as of December 31, 2000 and 1999 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ohio Valley
Banc Corp. as of December 31, 2000 and 1999 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
February 1, 2001
SUMMARY OF COMMON STOCK DATA
OHIO VALLEY BANC CORP.
Years ended December 31, 2000 and 1999
INFORMATION AS TO STOCK PRICES AND DIVIDENDS: The market for the common stock of
the Company is not highly active and trading has historically been limited. On
February 9, 1996, the Company's common stock was established on NASDAQ
securities market under the symbol "OVBC". Prior to this date a limited market
was created in the first quarter of 1992 through the Ohio Company.
The following table shows bid and ask quotations for the Company's common
stock during 2000 and 1999. The range of market price is compiled from data
provided by the broker based on limited trading. The quotations are inter-dealer
prices, without retail markup, markdown, or commission, and may not represent
actual transactions.
2000 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $29.50 $33.50 $30.00 $34.75
Second Quarter 26.00 29.50 26.75 31.00
Third Quarter 25.75 26.63 26.25 28.00
Fourth Quarter 24.75 26.56 25.13 27.25
1999 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $32.80 $33.60 $33.60 $35.20
Second Quarter 31.25 34.00 32.38 36.00
Third Quarter 29.25 33.50 29.50 35.00
Fourth Quarter 31.25 35.00 32.00 35.75
Dividends per share 2000 1999
- ------------------- ---- ----
First Quarter $.14 $.11
Second Quarter .15 .14
Third Quarter .15 .14
Fourth Quarter .15 .14
Shown above is a table which reflects the dividends paid per share on the
Company's common stock. This disclosure is based on the weighted average number
of shares for each year and does not indicate the amount paid on the actual
shares outstanding at the end of each quarter. As of December 31, 2000 the
number of holders of common stock was 1,839 an increase from 1,766 shareholders
at December 31, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this discussion is to provide an analysis of the
Company's financial condition and results of operations which is not otherwise
apparent from the audited consolidated financial statements included in this
report. The accompanying consolidated financial information has been prepared by
management in conformity with generally accepted accounting principles and is
consistent with that reported in the consolidated statements. Reference should
be made to those statements and the selected financial data presented elsewhere
in this report for an understanding of the following tables and related
discussion.
RESULTS OF OPERATIONS:
SUMMARY
Ohio Valley Banc Corp generated earnings of $4,400 for 2000 an increase
of 2.5% from 1999. Net income was up 3.9% in 1999. Net income per share of $1.25
for 2000 represented continued growth from $1.22 in 1999 and $1.18 in 1998.
Asset growth for 2000 was $39,601 or 7.6% which grew total assets to $561,658.
The Company's return on assets (ROA) declined to .81% for 2000 compared to
1999's ROA of .88% and 1998's ROA of 1.01%. Return on equity (ROE) was 10.29%
for 2000 compared to 10.29% for 1999 and 10.69% for 1998. The average of the bid
and ask price for the Company's stock was $25.375 at December 31, 2000 compared
to $33.625 at year-end 1999 and $33.20 at year-end 1998.
NET INTEREST INCOME
The most significant portion of the Company's revenue, net interest
income, results from properly managing the spread between interest income on
earning assets and interest expense on the liabilities used to fund those
assets. Net interest income is affected by changes in both the average volume
and mix of the balance sheet and the level of interest rates for financial
instruments. Changes in net interest income are measured by net interest margin
and net interest spread. Net interest margin is expressed as net interest income
divided by average interest-earning assets. Net interest spread is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. Both of these are reported on
a taxable equivalent basis. Net interest margin is greater than net interest
spread due to the interest earned on interest-earning assets funded from
noninterest bearing funding sources, primarily demand deposits and stockholders'
equity. Following is a discussion of changes in interest-earning assets,
interest-bearing liabilities and the associated impact on interest income and
interest expense for the three years ending December 31, 2000. Tables I and II
have been prepared to summarize the significant changes outlined in this
analysis.
Net interest income on a fully tax equivalent basis (FTE) declined $59
in 2000, a decrease of .27% compared to the $21,546 earned in 1999. This decline
was primarily attributable to an increase in funding costs resulting in a lower
net interest margin. For 1999, net interest income increased 8.4% over 1998. The
growth in net interest income for 1999 was attributable to an increase in
interest-earning assets which was partially offset by a decline in net interest
margin.
For 2000, average earning assets grew by 11.3% as compared to growth of
19.5% in 1999. Driving the growth in earning assets was the growth in average
loan balances. Average total loans expanded $49,812 or 13.0% from 1999 and
represented 84.7% of earning assets. This compares to average loan growth of
25.2% for 1999 and loans representing 83.4% of earning assets. Management
focuses on generating loan growth as this portion of earning assets provides the
greatest return to the Company. Although loans comprise a larger percentage of
earning assets, management is comfortable with the current level of loans based
on collateral values, the balance of the allowance for loan losses and the
Company's well-capitalized status. Average securities declined from 18.6% of
earning assets for 1998 to 14.5% in 2000. Management maintains securities at a
dollar level adequate to provide ample liquidity and cover pledging
requirements.
Average interest-bearing liabilities increased 12.9% between 1999 and
2000 and increased 22.1% between 1998 and 1999. While the composition of
interest-bearing liabilities consists mostly of time deposits, which were
57.5%of interest-bearing liabilities in 2000, 53.7% in 1999 and 58.7% in 1998,
more emphasis has been placed on other borrowed funds and NOW accounts. Borrowed
funds have increased from 8.3% of interest-bearing liabilities in 1998 to 10.6%
in 2000. The use of borrowed funds has been a cost-effective funding source for
the Company's positive loan growth. The average cost of borrowed funds for 2000
is 6.00% compared to time deposits average cost of 6.03%. Management has also
been effective in generating additional deposits through NOW accounts, which
have increased from 11.2% of interest-bearing liabilities in 1998 to 18.4% in
2000. Although these balances were influenced by more aggressive pricing on NOW
accounts, the average cost was less than traditional time deposits.
The net interest margin declined .49% to 4.21% in 2000 from 4.70% in
1999. This is compared to a .48% decrease in the net interest margin in 1999.
Contributing to the decline in net interest margin in 2000 was the decrease in
the net interest spread of .51%. The increase in yield on earning assets of .12%
was completely offset by the increase in funding costs of .63%. Contributing to
the positive growth in yield on earning assets was an increase in the return on
average loans of .07% from 1999 combined with higher average balances in loans.
Total funding costs increased as a result of the cost of borrowings increasing
.61% and time deposits increasing .53%, largely due to the interest rate
increases that were evident in 2000. Additionally, the cost of NOW accounts
increased .79%. The impact of interest free funds on the net interest margin
increased from .65% in 1999 to .67% in 2000. The .02% increase in the
contribution of interest free funding sources combined with the .51% decrease in
the net interest spread yielded the .49% decrease in the net interest margin.
The 1999 decrease in net interest margin was due to a .37% decrease in net
interest spread with asset yields decreasing .46% partially offset by funding
costs decreasing .09%. The decrease in net interest spread was further impacted
by a decrease of .11% from interest free funding sources. Although the net
interest margin will continue to be challenged in 2001, management does not
expect the net interest margin to decline at the levels experienced in 2000 and
1999.
NONINTEREST INCOME AND EXPENSE
Total noninterest income, excluding securities gains and losses,
increased $1,093 a 37.1% gain over 1999. Total other income increased 21.4% in
1999. Driving the Company's growth in noninterest income was the increase in
service charge income on deposit accounts which was up $779 in 2000 and $268 in
1999. Income earned on life insurance contracts from the Company's supplemental
retirement program was up $75 in 2000 and $28 in 1999. Additionally, other
operating income increased $197 over 1999 and $188 over 1998 with gains in fee
income from debit and credit card transactions, commissions earned from loan
insurance sales and loan service fees.
Total noninterest expense increased $918 or 5.7% in 2000 and $1,859 or
13.1% in 1999. The most significant expense in this category is salary and
employee benefits which increased $110 or only 1.2% from 1999 to 2000.
Contributing to this minimal increase was the decrease in the Company's
full-time equivalent employee base from 257 at year-end 1999 to 237 at year-end
2000, as more emphasis has been placed on reallocating
employees'responsibilities as opposed to hiring new individuals. Salaries and
employee benefits expense increased $1,101 or 13.6% from 1998 to 1999 largely
due to the new branch openings and acquisitions during this period which
contributed to the increase in number of full-time equivalent employees. Also
associated with the new offices was an increase in occupancy expense and
furniture and equipment expense for both 2000 and 1999. These increased costs
are related to depreciation, rental property costs and utilities. The increase
in other operating expenses was related to advertising, computer software
depreciation, conversion expenses from the purchase of the Huntington branches,
expenses associated with the 1998 acquisition and 2000 merger of Jackson Savings
and general inflationary increases.
FINANCIAL CONDITION:
SECURITIES
Management's goal in structuring the portfolio is to maintain a prudent
level of liquidity while providing an acceptable rate of return without
sacrificing asset quality. Maturing securities have historically provided
sufficient liquidity such that management has not sold a debt security in
several years.
Total securities increased $4,206 or 5.9% compared to year-end 1999. A
portion of this increase was related to the market appreciation on securities
classified as available for sale. The portfolio consists primarily of U.S.
Treasury notes and U.S. Government agency bonds which comprise approximately 71%
of total securities. Based on the overall composition, the portfolio's exposure
to credit risk is minimal. The weighted average FTE yield on debt securities at
year-end 2000 was 6.54% as compared to 6.42% at year-end 1999. Although
management strategically ladders investment maturities to reduce the exposure to
changes in interest rates, the yield on securities should decline in 2001 based
on current reinvestment opportunities. Table III provides a summary of the
portfolio by category and remaining contractual maturity. Issues classified as
equity securities have no stated maturity date and are not included in Table
III.
LOANS
In 2000, total loans increased $37,145 or 9.0% to reach $448,303. The
largest contributor was commercial loans which experienced growth of $20,241 or
16.9%. The commercial loan area originated nearly $80,000 in loans for 2000.
Approximately 77% of the loans were originated in Gallia, Jackson, Pike and
Franklin counties and 16% was originated from our West Virginia markets.
Consumer loans expanded by $9,071 representing a 10.2% gain. A portion of the
consumer loans were originated through indirect lending, primarily from area
automobile dealers, and are subject to the same underwriting as our regular
loans. Indirect loan balances represent about one third of total consumer loans.
In 2000, real estate loans grew $8,099 a decline from the growth of $37,975
generated in 1999. Like many financial institutions, the Company's real estate
growth was impacted by the higher interest rates experienced during 2000. With
the Company's expansion into new markets, approximately two thirds of real
estate originations occurred outside of Gallia county. The Company generally
originates real estate loans for its own portfolio, as very few loans are sold
on the secondary market. Recently, the Bank began offering secondary market
loans through the West Virginia Housing Authority to enhance its customer
service and loan pricing. Tables V, VI, and VII have been provided to enhance
the understanding of the loan portfolio and the allowance for potential loan
losses. Management evaluates the adequacy of the allowance for loan losses
quarterly based on several factors including, but not limited to, general
economic conditions, loan portfolio composition, prior loan loss experience, and
management's estimate of probable losses. Actual losses on loans are reflected
as reductions in the reserve and are referred to as charge-offs. The amount of
the provision for loan losses charged to operating expenses is the amount
necessary, in management's opinion, to maintain the allowance for loan losses at
an adequate level. The allowance required is primarily a function of the
relative quality of the loans in the loan portfolio, the mix of loans in the
portfolio and the rate of growth of outstanding loans.
The ratio of net charge-offs to average total loans at December 31,
2000 was .36% down from .40% at December 31, 1999 due mostly to declining losses
in the commercial loan area. Net charge-offs in both the real estate and
commercial loan areas still remain relatively low, which represents the overall
quality of these segments of the loan portfolio. Nonperforming loans, which
include nonaccrual loans and accruing loans past due 90 days or more, are
returned to performing status when the loan is brought current and has performed
in accordance with contractual terms. Nonperforming loans were approximately
$6,639 or 1.48% of outstanding balances at December 31, 2000 compared to $6,664
or 1.62% of outstanding balances at the end of 1999.
For 2000, provision expense was down by $413 compared to the provision
expense for 1999. This decline in provision expense was largely associated with
the slower growth rate of the loan portfolio in 2000 (9.0%) as compared to 1999
(18.4%). In addition, net charge-offs as a percent of average total loans and
nonperforming loans to total loans both declined in 2000. Furthermore, real
estate loans comprise nearly 47% of the loan portfolio. This type of loan
typically represents relatively lower risk loans due to higher, more stable
value of collateral and therefore require a lower allocation of the allowance
for loan losses. As a percentage of total loans, the allowance for loan losses
at December 31, 2000 was 1.20%, down from 1.23% at December 31, 1999. Management
believes the allowance is adequate to absorb probable losses in the portfolio
based on collateral values as well as a high relative volume of real estate
mortgages. Management anticipates that it will continue its provision to the
allowance for loan losses at its current level for the foreseeable future based
on the current status of nonperforming loans.
DEPOSITS
Interest-earning assets are funded primarily by deposits. The
accompanying table IV shows the composition of total deposits as of December 31,
2000. Total deposits grew $27,040 or 6.7% to reach $432,371 by year-end 2000.
Leading the growth in deposits was certificates of deposits with an increase of
$25,431. The certificate of deposit growth occurred mostly in Gallia, Mason,
Cabell and Meigs counties. NOW accounts also contributed to deposit growth with
an increase of $5,889 driven by the Company's Gold Club product, which offers a
NOW account combined with other banking benefits. This product also contributed
to the $5,497 decrease in savings and money market accounts which pay lower
interest rates than the Gold Club account. Noninterest-bearing deposits
increased $1,217. With the expansion in new markets, management expects
continued growth in deposits in 2001.
FUNDS BORROWED
In addition to traditional deposits, the Company considers borrowed
funds when evaluating funding sources. Other funds borrowed consist primarily of
Federal Home Loan Bank (FHLB) advances, securities sold under agreements to
repurchase, and promissory notes. FHLB advances are subject to collateral
agreements and are secured by qualifying first mortgage loans and FHLB stock.
Management has utilized FHLB advances to fund long-term assets and to fund
short-term liquidity needs. At December 31, 2000, the balance of FHLB advances
totaled $44,753 compared to $38,746 at December 31, 1999. FHLB borrowings have
two distinct advantages: they can be less expensive than deposits for comparable
terms and they are not subject to early redemption. Management will continue to
evaluate borrowings from the FHLB as an alternative funding source. Promissory
notes are primarily associated with funding loans at Loan Central and were
issued with terms of one year or less.
CAPITAL RESOURCES
The Company maintains a capital level that exceeds regulatory
requirements as a margin of safety for its depositors and shareholders.
Shareholders' equity totaled $44,492 at December 31, 2000, compared to $42,708
at December 31, 1999, which represents growth of 4.2%. All of the capital ratios
exceeded the regulatory minimum guidelines as identified in Note P "Regulatory
Matters".
Cash dividends paid of $2,074 for 2000 represents a 10.5% increase over
the cash dividends paid during 1999. The increase in cash dividends paid is
largely due to an increase in the dividend rate paid per share.
The Company maintains a dividend reinvestment and stock purchase plan.
The plan allows shareholders to purchase additional shares of company stock. A
benefit of the plan is to permit the shareholders to reinvest cash dividends as
well as make supplemental purchases without the usual payment of brokerage
commissions. During 2000, the Company issued 11,198 shares under the dividend
reinvestment and stock purchase plan. At December 31, 2000, approximately 73% of
the shareholders were enrolled in the dividend reinvestment plan. Members of the
plan invested $317 in 2000 which represents 15% of year-to-date dividends paid.
As part of the Company's stock repurchase program, management was able to
utilize the proceeds from reinvested dividends and voluntary participant cash to
purchase shares on the open market and redistribute those dollars through the
dividend reinvestment plan with less need for the issuance of common stock. The
Company's Board of Directors recently voted to extend the maturity date of the
stock repurchase program to February 10, 2002.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's goal for interest rate sensitivity management is to
maintain a balance between steady net interest income growth and the risks
associated with interest rate fluctuations. Interest rate risk ("IRR") is the
exposure of the Company's financial condition to adverse movements in interest
rates. Accepting this risk can be an important source of profitability, but
excessive levels of IRR can threaten the Company's earnings and capital. It is
management's policy not to position the balance sheet so as to expose the
Company to levels of interest rate risk which could significantly impair
earnings performance or endanger capital.
The Company's asset and liability committee monitors the rate
sensitivity of the balance sheet weekly through parameters established by the
Board of Directors. The committee uses an interest rate sensitivity gap analysis
prepared quarterly to monitor the relationship between the maturity and
repricing of its interest-earning assets and interest-bearing liabilities.
Interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets and interest-bearing liabilities maturing or repricing
within a specified time period. A gap position is considered positive when the
amount of interest sensitive assets exceed the amount of interest sensitive
liabilities, and is considered negative when the amount interest sensitive
liabilities exceed the amount of interest sensitive assets. Generally, during a
period of rising interest rates, a negative gap would adversely affect net
interest income, while a positive gap would result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would result in an increase in net interest income, while a
positive gap would negatively affect net interest income. This analysis assumes
that interest rate changes for interest-earning assets and interest-bearing
liabilities are of the same magnitude and velocity, whereas actual interest rate
changes generally differ in magnitude and velocity. Based on the gap model, the
Company was liability sensitive in the short term and asset sensitive for
periods over five years.
The Company's exposure to interest rate risk is primarily managed
through the selection of the type and repricing characteristics of
interest-earning assets and interest-bearing liabilities. Management can
influence the Company's gap position by offering fixed or variable rate
products, by changing the terms of new loans, investments and time deposits, or
by selling existing assets or repaying certain liabilities. The Company's
ability to manage its gap position can be challenged by customer preferences
which may not meet the Company's goals. The FHLB assists in funding
interest-earning assets by providing advances with similar repricing
characteristics as many of the loans offered by the Company.
Table VIII provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
repricing opportunities strictly by maturity date without regard for repricing
dates for variable rate products. Noninterest-bearing checking deposits assume
an annual decay rate of 14% and savings and interest-bearing checking accounts
assume an annual decay rate of 20% based on the Company's historical experience.
A fundamental difference between the table and the gap model previously
discussed is that the table presents financial intruments based on the date of
expected cash flows while gap analysis only focuses on repricing characteristics
of financial instruments.
Liquidity management should focus on matching the cash inflows and
outflows within the Company's natural market for loans and deposits. This goal
is accomplished by maintaining sufficient asset liquidity along with stable core
deposits. The primary sources of liquidity are interest-bearing balances with
banks, federal funds sold and the maturity and repayment of investments and
loans as well as cash flows provided from operations. The Company has classified
$59,819 in securities as available for sale at December 31, 2000. In addition,
the Federal Home Loan Bank in Cincinnati offers advances to the Bank which
further enhances the Bank's ability to meet liquidity demands. The Bank also has
the ability to purchase federal funds from several of its correspondent banks.
Management does not rely on any single source of liquidity and monitors the
level of liquidity based on many factors affecting the Company's financial
condition. See statement of cash flows.
INFLATION
Consolidated financial data included herein has been prepared in
accordance with generally accepted accounting principles (GAAP). Presently, GAAP
requires the Company to measure financial position and operating results in
terms of historical dollars with the exception of securities available for sale,
which are carried at fair value. Changes in the relative value of money due to
inflation or deflation are generally not considered.
In management's opinion, changes in interest rates affect the financial
institution to a far greater degree than changes in the inflation rate. While
interest rates are greatly influenced by changes in the inflation rate, they do
not change at the same rate or in the same magnitude as the inflation rate.
Rather, interest rate volatility is based on changes in the expected rate of
inflation, as well as monetary and fiscal policies. A financial institution's
ability to be relatively unaffected by changes in interest rates is a good
indicator of its capability to perform in today's volatile economic environment.
The Company seeks to insulate itself from interest rate volatility by ensuring
that rate sensitive assets and rate sensitive liabilities respond to changes in
interest rates in a similar time frame and to a similar degree.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward looking statements'
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934 and as defined in the Private Securities
Litigation Reform Act of 1995. Such statements are often, but not always,
identified by the use of such words as "believes," "anticipates," "expects," and
similar expressions. Such statements involve various important assumptions,
risks, uncertainties, and other factors, many of which are beyond our control,
that could cause actual results to differ materially from those expressed in
such forward looking statements. These factors include, but are not limited to:
changes in political, economic or other factors such as inflation rates,
recessionary or expansive trends, and taxes; competitive pressures; fluctuations
in interest rates; the level of defaults and prepayment on loans made by the
Company; unanticipated litigation, claims, or assessments; fluctuations in the
cost of obtaining funds to make loans; and regulatory changes. Readers are
cautioned not to place undue reliance on such forward looking statements, which
speak only as of the date hereof. The Company undertakes no obligation and
disclaims any intention to republish revised or updated forward looking
statements, whether as a result of new information, unanticipated future events
or otherwise.
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I
December 31
------------------------------------------------------------------------------------
2000 1999 1998
(dollars in thousands) -------------------------- -------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
- ------
Interest-earning assets:
Interest-bearing balances $ 729 34 4.63% $ 781 $ 30 3.87% $ 3,079 $ 176 5.71%
with banks
Federal funds sold 3,418 208 6.10 2,485 121 4.87 3,910 214 5.47
Securities:
Taxable 58,106 3,690 6.35 56,153 3,490 6.21 55,092 3,457 6.27
Tax exempt 15,898 1,137 7.15 16,849 1,183 7.02 16,307 1,136 6.97
Loans 432,165 40,483 9.37 382,353 35,559 9.30 305,392 30,590 10.02
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
earning assets 510,316 45,552 8.93% 458,621 40,383 8.81% 383,780 35,573 9.27%
Noninterest-earning assets:
Cash and due from banks 12,851 13,146 9,268
Other nonearning assets 26,257 21,517 19,065
Allowance for loan losses (5,118) (4,652) (3,631)
-------- -------- --------
Total noninterest-
earning assets 33,990 30,011 24,702
Total assets $544,306 $488,632 $408,482
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $82,307 3,780 4.59% $ 66,105 2,514 3.80% $ 36,152 1,222 3.38%
Savings and Money Market 42,430 1,091 2.57 52,628 1,426 2.71 52,671 1,381 2.62
Time deposits 256,846 15,496 6.03 212,091 11,662 5.50 189,955 10,886 5.73
Repurchase agreements 17,606 859 4.88 13,961 510 3.65 18,148 685 3.77
Other borrowed money 47,311 2,839 6.00 50,539 2,725 5.39 26,832 1,517 5.65
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 446,500 24,065 5.39% 395,324 18,837 4.76% 323,758 15,691 4.85%
Noninterest-bearing liabilities:
Demand deposit accounts 47,291 45,226 40,715
Other liabilities 7,742 6,352 5,370
-------- -------- ------
Total noninterest-
bearing liabilities 55,033 51,578 46,085
Shareholders' equity 42,773 41,730 38,639
-------- -------- --------
Total liabilities and
shareholders' equity $544,306 $488,632 $408,482
======== ======== ========
Net interest earnings $21,487 $21,546 $19,882
======= ======= =======
Net interest earnings as a percent
of interest-earning assets 4.21% 4.70% 5.18%
----- ----- -----
Net interest rate spread 3.54% 4.05% 4.42%
----- ----- -----
Average interest-bearing liabilities
to average earning assets 87.49% 86.20% 84.36%
===== ===== =====
Fully taxable equivalent yields are calculated assuming a 34% tax rate, net of
nondeductible interest expense. Average balances are computed on an average
daily basis. The average balance for available-for-sale securities includes the
market value adjustment. However, the calculated yield is based on the
securities' amortized cost. Average loan balances include nonaccruing loans.
Loan income includes cash received on nonaccruing loans.
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II
2000 1999
----------------------------- ----------------------------
(dollars in thousands) Increase (Decrease) Increase (Decrease)
From Previous Year Due to From Previous Year Due to
----------------------------- ----------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
------ ---------- ----- ------ ---------- -----
INTEREST INCOME
- ---------------
Interest-bearing balances
with banks $ (2) $ 5 $ 3 $ (102) $ (44) $ (146)
Federal funds sold 52 35 87 (71) (22) (93)
Securities:
Taxable 123 78 201 66 (33) 33
Tax exempt (68) 22 (46) 39 8 47
Loans 4,665 259 4,924 7,279 (2,310) 4,969
------- ------- ------- ------- ------- -------
Total interest income 4,770 399 5,169 7,211 (2,401) 4,810
INTEREST EXPENSE
- ----------------
NOW accounts 685 580 1,265 1,122 170 1,292
Savings and Money Market (265) (70) (335) (1) 46 45
Time deposits 2,625 1,209 3,834 1,231 (455) 776
Repurchase agreements 152 197 349 (153) (22) (175)
Other borrowed money (181) 296 115 1,281 (73) 1,208
------- ------- ------- ------- ------- -------
Total interest expense 3,016 2,212 5,228 3,480 (334) 3,146
------- ------- ------- ------- ------- -------
Net interest earnings $ 1,754 $(1,813) $ (59) $ 3,731 $(2,067) $ 1,664
======= ======= ======= ======= ======= =======
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each. Fully taxable equivalent yield assumes a 34% tax
rate, net of related nondeductible interest expense.
SECURITIES
Table III
MATURING
---------------------------------------------------------------------------
As of December 31, 2000 Within After One but After Five but
(dollars in thousands) One Year Within Five Years Within Ten Years After Ten Years
-------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury securities $ 2,508 6.42%
Obligations of U.S. Government
agency securities 6,035 6.14% $44,761 6.25%
Obligations of states and
political subdivisions 2,013 7.29% 7,012 7.87% $3,525 7.31% $2,953 7.72%
Mortgage-backed securities 5 8.00% 635 6.37% 1,672 5.66%
------- ---- ------- ---- ------ ---- ------ ----
Total debt securiities $10,556 6.42% $51,778 6.47% $4,160 7.17% $4,625 6.97%
======= ==== ======= ==== ====== ==== ====== ====
Tax equivalent adjustments have been made in calculating yields on obligations
of states and political subdivisions using a 34% rate. Weighted average yields
are calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security. Mortgage-backed securities, which have
prepayment provisions, are assigned to a maturity based on estimated average
lives. Securities are shown at their carrying values which include the market
value adustments for available-for-sale securities.
DEPOSITS
Table IV as of December 31
(dollars in thousands)
2000 1999 1998
---- ---- ----
Interest-bearing deposits:
NOW accounts $ 80,336 $ 74,447 $ 47,190
Money Market 9,622 12,419 20,103
Savings accounts 26,976 29,676 33,624
IRA accounts 34,683 34,938 30,870
Certificates of Deposit 233,093 207,407 149,569
-------- -------- --------
384,710 358,887 281,356
Noninterest-bearing deposits:
Demand deposits 47,661 46,444 45,961
-------- -------- --------
Total deposits $432,371 $405,331 $327,317
======== ======== ========
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Table V Years Ended December 31
(dollars in thousands) 2000 1999 1998 1997 1996
- ---------------------- ---- ---- ---- ---- ----
Commercial loans $1,546 $1,278 $1,132 $ 879 $ 887
Percentage of loans to total loans 31.36% 29.33% 28.18% 28.79% 29.08%
Real estate loans 609 270 264 218 338
Percentage of loans to total loans 46.78% 49.04% 47.14% 43.07% 42.56%
Consumer loans 1,629 1,444 1,360 949 799
Percentage of loans to total loans 21.86% 21.63% 24.68% 28.14% 28.36%
Unallocated 1,601 2,063 1,521 1,344 1,156
------- ------- ------- ------- -------
Allowance for Loan Losses $5,385 $5,055 $4,277 $3,390 $3,180
======= ======= ======= ======= =======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Ratio of net charge-offs
to average loans .36% .40% .46% .38% .25%
======= ======= ======= ======= =======
The above allocation is based on estimates and subjective judgements and is not
necessarily indicative of the specific amounts or loan categories in which
losses may ultimately occur.
SUMMARY OF NONPERFORMING AND PAST DUE LOANS
Table VI
(dollars in thousands) 2000 1999 1998 1997 1996
- ---------------------- ---- ---- ---- ---- ----
Impaired loans $1,233 $1,413 $ 624 $ 430 $ 449
Past due-90 days or more and
still accruing 3,691 3,711 2,106 3,607 2,707
Nonaccrual 2,948 2,953 981 1,019 737
Accruing loans past due 90
days or more to total loans .82% .90% .61% 1.29% 1.02%
Nonaccrual loans as a % of
total loans .66% .72% .28% .36% .28%
Impaired loans as a % of total loans .28% .34% .18% .15% .17%
Allowance for loans losses as a
% of total loans 1.20% 1.23% 1.23% 1.21% 1.20%
Management believes that the impaired loan disclosures are comparable to the
nonperforming loan disclosures except that the impaired loan disclosures do not
include single family residential or consumer loans which are analyzed in the
aggregate for loan impairment purposes.
During 2000, the Company did not recognize any interest income on impaired
loans. Loans not included above that management feels have loss potential total
approximately $530. The Company has no assets which are considered to be
troubled debt restructurings.
Management formally considers placing a loan on nonaccrual status when
collection of principal or interest has become doubtful. Furthermore, a loan
should not be returned to the accrual status unless either all delinquent
principal or interest has been brought current or the loan becomes well secured
and is in the process of collection.
MATURITY AND REPRICING DATA OF LOANS
Table VII
As of December 31, 2000 Maturing/Repricing
(dollars in thousands)
Within After One but
One Year Within Five Years After Five Years Total
-------- ----------------- ---------------- -----
Commercial loans and other $ 81,214 $ 12,679 $ 46,673 $140,566
Real estate loans 50,352 26,555 132,817 209,724
Consumer loans 22,114 61,547 14,352 98,013
-------- -------- -------- --------
Total loans $153,680 $100,781 $193,842 $448,303
======== ======== ======== ========
Loans maturing or repricing after one year with:
Variable interest rates $ 31,222
Fixed interest rates 263,401
--------
Total $294,623
========
RATE SENSITIVITY ANALYSIS
Table VIII
(dollars in thousands)
As of December 31, 2000 Principal Amount Maturing in:
There- Fair Value
2001 2002 2003 2004 2005 after Total 12/31/00
Rate-Sensitive Assets:
Fixed interest rate loans $ 10,660 $ 9,723 $ 16,261 $ 23,477 $ 20,637 $199,150 $279,908 $282,628
Average interest rate 10.53% 11.76% 11.66% 10.50% 9.57% 8.19% 8.90%
Variable interest rate loans $ 44,213 $ 3,730 $ 2,249 $ 5,267 $ 5,079 $107,857 $168,395 $168,487
Average interest rate 11.18% 10.56% 9.65% 9.76% 10.35% 8.71% 9.49%
Fixed interest rate securities $ 10,530 $ 11,287 $ 20,351 $ 10,696 $ 8,787 $ 13,274 $ 74,925 $ 75,930
Average interest rate 6.44% 6.24% 6.17% 6.57% 7.30% 7.19% 6.58%
Other interest-bearing assets $ 816 $ 816 $ 816
Average interest rate 5.12% 5.12%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 6,863 $ 5,875 $ 5,029 $ 4,305 $ 3,685 $ 21,904 $ 47,661 $ 47,661
Savings & Interest-bearing checking $ 19,699 $ 16,274 $ 13,465 $ 11,159 $ 9,260 $ 47,077 $116,934 $116,935
Average interest rate 3.83% 3.87% 3.91% 3.94% 3.98% 4.16% 4.00%
Time deposits $193,424 $ 46,467 $ 22,576 $ 2,064 $ 1,813 $ 1,432 $267,776 $270,559
Average interest rate 6.30% 6.42% 6.37% 6.14% 6.62% 7.27% 6.22%
Fixed interest rate borrowings $ 18,381 $ 8,765 $ 4,581 $ 675 $ 121 $ 19,124 $ 51,647 $ 51,564
Average interest rate 6.45% 5.66% 5.81% 6.01% 5.93% 6.91% 6.42%
Variable interest rate borrowings $ 25,320 $ 25,320 $ 25,320
Average interest rate 5.65% 5.65%
KEY RATIOS
Table IX
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Return on average assets .81% .88% 1.01% 1.02% .98%
Return on average equity 10.29% 10.29% 10.69% 10.98% 10.82%
Dividend payout ratio 47.14% 43.73% 37.13% 37.81% 39.53%
Average equity to
average assets 7.86% 8.54% 9.46% 9.32% 9.04%