UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended:
JUNE 30, 2001
Commission file number: 0-20914
Ohio Valley Banc Corp
----------------------
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
31-1359191
----------
(I.R.S. Employer Identification Number)
420 Third Avenue. Gallipolis, Ohio 45631
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 446-2631
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes
No
Indicate the number of shares outstanding of the issuers classes of common
stock, as of the latest practicable date.
Common stock, $1.00 stated value Outstanding at July 31, 2001
3,456,184 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
================================================================================
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10-01 of Regulation S-X
is included in this Form 10Q as referenced below:
Consolidated Balance Sheets..................................... 1
Consolidated Statements of Income............................... 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity......................................... 3
Condensed Consolidated Statements of Cash Flows................. 4
Notes to the Consolidated Financial Statements.................. 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 10
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk......................................... 14
Part II - Other Information
Other Information and Signatures................................ 15
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
================================================================================
June 30, December 31,
2001 2000
------------- ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 13,772 $ 14,569
Federal funds sold 3,750
------------- ------------
Total cash and cash equivalents 17,522 14,569
Interest-bearing balances with banks 952 816
Securities available-for-sale 49,359 59,819
Securities held-to-maturity
(estimated fair value: 2001 - $16,166,
2000 - $16,111) 15,640 15,767
Total loans 471,802 448,303
Less: Allowance for loan losses (5,671) (5,385)
------------- ------------
Net loans 466,131 442,918
Premises and equipment, net 9,057 9,285
Accrued income receivable 3,586 4,104
Intangible assets, net 1,331 1,396
Bank owned life insurance 10,184 9,408
Other assets 4,057 3,576
------------- -------------
Total assets $ 577,819 $ 561,658
============= =============
LIABILITIES
Noninterest-bearing deposits $ 51,640 $ 47,661
Interest-bearing deposits 377,266 384,710
------------- -------------
Total deposits 428,906 432,371
Securities sold under agreements to repurchase 19,492 18,345
Other borrowed funds 69,765 53,622
Obligated mandatorily redeemable capital securities
of subsidiary trust 5,000 5,000
Accrued liabilities 9,230 7,828
------------- -------------
Total liabilities 532,393 517,166
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2001 - 3,559,773 shares
issued, 2000 - 3,559,770 shares issued) 3,560 3,560
Additional paid-in capital 28,760 28,760
Retained earnings 15,000 13,817
Accumulated other comprehensive income 847 436
Treasury stock at cost (2001 - 98,589 shares,
2000 - 72,489 shares) (2,741) (2,081)
------------- -------------
Total shareholders' equity 45,426 44,492
------------- -------------
Total liabilities and
shareholders' equity $ 577,819 $ 561,658
============= =============
================================================================================
See notes to the consolidated financial statements.
1
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Interest and dividend income:
Loans, including fees $ 10,727 $ 9,878 $ 21,116 $ 19,373
Securities:
Taxable 726 852 1,536 1,660
Tax exempt 192 190 385 383
Dividends 82 77 162 149
Other Interest 140 103 191 187
--------- --------- --------- ---------
11,867 11,100 23,390 21,752
Interest expense:
Deposits 4,922 4,902 10,178 9,534
Repurchase agreements 153 218 328 367
Other borrowed funds 874 658 1,664 1,257
Obligated mandatorily redeemable
capital securities of
subsidiary trust 132 265
--------- --------- --------- ---------
6,081 5,778 12,435 11,158
--------- --------- --------- ---------
Net interest income 5,786 5,322 10,955 10,594
Provision for loan losses 646 407 1,073 709
--------- --------- --------- ---------
Net interest income after provision 5,140 4,915 9,882 9,885
Noninterest income:
Service charges on deposit accounts 774 390 1,472 723
Trust fees 60 58 115 111
Income from bank owned insurance 146 114 284 222
Other 331 304 606 573
--------- --------- --------- ---------
1,311 866 2,477 1,629
Noninterest expense:
Salaries and employee benefits 2,591 2,343 4,954 4,714
Occupancy expense 310 340 626 665
Furniture and equipment expense 266 317 539 611
Data processing expense 115 118 222 189
Other 1,572 1,284 2,892 2,497
--------- --------- --------- ---------
4,854 4,402 9,233 8,676
--------- --------- --------- ---------
Income before income taxes 1,597 1,379 3,126 2,838
Provision for income taxes 443 388 865 795
--------- --------- --------- ---------
NET INCOME $ 1,154 $ 991 $ 2,261 $ 2,043
========= ========= ========= =========
Earnings per share $ 0.33 $ 0.28 $ 0.65 $ 0.58
========= ========= ========= =========
================================================================================
See notes to the consolidated financial statements.
2
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands)
================================================================================
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Balance at beginning of period $ 44,957 $ 42,850 $ 44,492 $ 42,708
Comprehensive income:
Net income 1,154 991 2,261 2,043
Net change in unrealized
gain or loss on available-for-sale
securities 25 107 411 (140)
--------- --------- --------- ---------
Total comprehensive income 1,179 1,098 2,672 1,903
Proceeds from issuance of common
stock through dividend reinvestment
plan 193 193
Cash dividends (555) (527) (1,078) (1,023)
Shares acquired for treasury (155) (937) (660) (1,104)
--------- --------- --------- ---------
Balance at end of period $ 45,426 $ 42,677 $ 45,426 $ 42,677
========= ========= ========= =========
================================================================================
See notes to the consolidated financial statements.
3
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Six months ended June 30,
2001 2000
------------ ------------
Net cash provided by operating activities $ 4,839 $ 4,767
Investing activities
Proceeds from maturities of
securities available-for-sale 16,574 2,606
Purchases of securities available-
for-sale (5,331) (6,368)
Proceeds from maturities of
securities held-to-maturity 911 1,118
Purchases of securities held-to-maturity (811) (718)
Change in interest-bearing deposits
in other banks (136) 415
Net increase in loans (24,286) (21,798)
Purchases of premises and equipment, net (364) (723)
Purchases of insurance contracts, net (530) (905)
------------ ------------
Net cash used in investing activities (13,973) (26,373)
Financing activities
Change in deposits (3,465) 17,690
Cash dividends (1,078) (1,023)
Proceeds from issuance of common stock 193
Purchases of treasury stock (660) (1,104)
Change in securities sold under
agreements to repurchase 1,147 364
Proceeds from long-term borrowings 26,077 5,250
Repayment of long-term borrowings (7,117) (5,976)
Change in other short-term borrowings (2,817) (299)
------------ ------------
Net cash from financing activities 12,087 15,095
------------ ------------
Change in cash and cash equivalents 2,953 (6,511)
Cash and cash equivalents at beginning of year 14,569 19,000
------------ ------------
Cash and cash equivalents at June 30, $ 17,522 $ 12,489
============ ============
Cash paid for interest $ 12,915 $ 10,979
Cash paid for income taxes 1,365 825
================================================================================
See notes to the consolidated financial statements.
4
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Ohio
Valley Banc Corp and its wholly owned subsidiaries The Ohio Valley Bank Company
and Loan Central, Inc., together referred to as the Company. All material
intercompany accounts and transactions have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of Management,
are necessary to present fairly the consolidated financial position of Ohio
Valley Banc Corp. at June 30, 2001, and its results of operations and cash flows
for the periods presented. The accompanying consolidated financial statements do
not purport to contain all the necessary financial disclosures required by
accounting principles generally accepted in the United States of America that
might otherwise be necessary in the circumstances. The Annual Report for Ohio
Valley Banc Corp for the year ended December 31, 2000, contains consolidated
financial statements and related notes which should be read in conjunction with
the accompanying consolidated financial statements.
The provision for income taxes is based upon the effective income tax rate
expected to be applicable for the entire year.
For consolidated financial statement classification and cash flow reporting
purposes, 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.
Earnings per share is computed based on the weighted average shares outstanding
during the period. Weighted average shares outstanding were 3,466,293 and
3,519,434 for the three months ending June 30, 2001 and June 30, 2000,
respectively. Weighted average shares outstanding were 3,473,414 and 3,530,453
for the six months ending June 30, 2001 and June 30, 2000, respectively.
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.
In June 2001, the Financial Accounting Standings Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141 "Business Combinations". SFAS
No. 141 requires all business combinations within its scope to be accounted for
using the purchase method, rather than the pooling-of-interests method. The
provisions of this statement apply to all business combinations initiated after
June 30, 2001. The adoption of this statement will only impact the Company's
financial statements if it enters into a business combination.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Company will be required to adopt this
statement on January 1, 2002. The adoption of this statement will not materially
impact the Company's financial statements.
================================================================================
(Continued)
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the securities, as presented in the consolidated balance sheet are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
June 30, 2001 ---------- ----------- ------------ ---------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 500 $ 2 $ 502
U.S. Government agency
securities 41,078 1,275 $ (1) 42,352
Mortgage-backed securities 1,868 8 1,876
Equity securities 4,629 4,629
---------- ----------- ------------ ---------
Total securities $ 48,075 $ 1,285 $ (1) $ 49,359
========== =========== ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 15,404 $ 559 $ (24) $ 15,939
Mortgage-backed securities 236 (9) 227
---------- ----------- ------------ ---------
Total securities $ 15,640 $ 559 $ (33) $ 16,166
========== =========== ============ =========
December 31, 2000
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
Equity securities 4,467 4,467
----------- ------------ ------------ ---------
Total securities $ 59,158 $ 721 $ (60) $ 59,819
=========== ============ ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 15,503 $ 383 $ (25) $ 15,861
Mortgage-backed securities 264 1 (15) 250
----------- ------------ ------------ ---------
Total securities $ 15,767 $ 384 $ (40) $ 16,111
=========== ============ ============ =========
================================================================================
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at June 30,
2001, 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
Cost Value Cost Value
------------ ----------- ----------- -----------
Debt securities:
Due in one year
or less $ 13,483 $ 13,603 $ 1,842 $ 1,853
Due in one to
five years 27,095 28,239 6,698 7,003
Due in five to
ten years 1,000 1,012 4,112 4,234
Due after ten years 2,752 2,849
Mortgage-backed sec. 1,868 1,876 236 227
------------ ----------- ----------- -----------
Total debt
securities $ 43,446 $ 44,730 $ 15,640 $ 16,166
============ =========== =========== ===========
Gains and losses on the sale of securities are determined using the specific
identification method, however there were no sales of debt and equity securities
during the first six months of 2001 and 2000.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
June 30, December 31,
2001 2000
---------------- ----------------
Real estate loans $ 212,635 $ 209,724
Commercial and industrial loans 155,150 139,826
Consumer loans 103,102 98,013
Other loans 915 740
---------------- ----------------
$ 471,802 $ 448,303
================ ================
At June 30, 2001 and December 31, 2000, loans on nonaccrual status were
approximately $3,789 and $2,948, respectively. Loans past due more than 90 days
and still accruing at June 30, 2001 and December 31, 2000 were $2,372 and
$3,691, respectively.
================================================================================
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the six months ended
June 30 is as follows:
2001 2000
---------------- ----------------
Balance - January 1, $ 5,385 $ 5,055
Loans charged off:
Real estate 90 42
Commercial 15 15
Consumer 970 737
------------------ -----------------
Total loans charged off 1,075 794
Recoveries of loans:
Real estate 9 1
Commercial 16
Consumer 263 129
------------------ -----------------
Total recoveries 288 130
------------------ -----------------
Net loan charge-offs (787) (664)
Provision charged to operations 1,073 709
------------------ -----------------
Balance - June 30, $ 5,671 $ 5,100
================== =================
Information regarding impaired loans is as follows:
June 30, December 31,
2001 2000
-------------- ---------------
Balance of impaired loans $ 949 $ 1,233
============== ===============
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $ 949 $ 1,233
============== ===============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 550 $ 530
============== ===============
Average investment in impaired loans
year-to-date $ 1,091 $ 1,266
============== ===============
Interest on impaired loans was not material for the periods ended June 30,
2001 and June 30, 2000.
================================================================================
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the central and southeastern
areas of Ohio as well as the western counties of West Virginia. Approximately
5.43% of total loans were unsecured at June 30, 2001 as compared to 6.25% at
December 31, 2000.
The Corporation is a party to financial instruments with off-balance sheet
risk. These instruments are required in the normal course of business to meet
the financial needs of its customers. The contract or notional amounts of these
instruments are not included in the consolidated financial statements. At June
30, 2001, the contract or notional amounts of these instruments, which primarily
include commitments to extend credit and standby letters of credit and financial
guarantees, totaled approximately $52,900 as compared to $52,135 at December 31,
2000.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at June 30, 2001 and December 31, 2000 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
--------------- ---------------- --------- ----------
2001 $ 60,020 $ 4,519 $ 5,226 $ 69,765
2000 $ 44,753 $ 5,594 $ 3,275 $ 53,622
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $90,030
and $4,629 at June 30, 2001. Fixed rate FHLB advances of $60,020 mature through
2010 and have interest rates ranging from 4.88% to 6.69%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 5.00% to 7.00% and are due at various dates through a final maturity date of
May 29, 2002.
Scheduled principal payments at 6/30/2001 are:
12/31 FHLB borrowings Promissory notes FRB Notes Totals
- ----- --------------- ---------------- --------- ----------
2001 $ 6,718 $ 2,821 $ 5,226 $ 14,765
2002 13,044 1,698 14,742
2003 13,931 13,931
2004 9,485 9,485
2005 2,612 2,612
Thereafter 14,230 14,230
---------------- ---------------- ---------- ----------
$ 60,020 $ 4,519 $ 5,226 $ 69,765
================ ================ ========== ==========
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $29,620 at June 30,
2001 and $33,100 at December 31, 2000. Various investment securities from the
Bank used to collateralize FRB notes totaled $6,170 at June 30, 2001 and $9,165
at December 31, 2000. Promissory notes were unsecured at June 30, 2001 and
December 31, 2000.
================================================================================
9
OHIO VALLEY BANC CORP
(dollars in thousands, except per share data)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
Valley Banc Corp at June 30, 2001, compared to December 31, 2000, and the
consolidated results of operations for the quarterly and year-to-date periods
ending June 30, 2001, compared to the same periods in 2000. The purpose of this
discussion is to provide the reader a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes included in
this Form 10-Q.
The Registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities which
would have such effect if implemented.
FINANCIAL CONDITION
The consolidated total assets of Ohio Valley Banc Corp. increased $16,161 or
2.9% during the first six months to reach $577,819 at June 30, 2001. The factor
contributing most to this growth in assets was loans which grew $23,499 or 5.2%.
Loans were funded by FHLB borrowings which increased $18,966 or 46.2%. In
addition, loans were funded by continued maturities of various U.S. treasury and
government agency securities which led to a total investment decrease of $10,587
or 14.0%. The Company's demand for these types of investments are decreasing due
to the decline in yield on reinvestment opportunities as well as the reduced
pledging requirements to support public fund deposits.
During the first six months of 2001, loan growth was led by commercial loans
expanding $15,324 or 11.0%. This growth came mostly from loan originations
within the Franklin and Jackson counties of Ohio which accounted for 74% of the
total increase. In addition, approximately 12% of commercial loan originations
came from the West Virginia market areas. For the same period, consumer loans
increased $5,089 or 5.2%. Virtually all of this increase occurred within
indirect loans, particularly automobiles, where management has been more
aggressive in its pricing of these products. In addition, real estate mortgages
grew $2,911 or 1.4%, with the largest portion of growth occurring within the
West Virginia market areas of Mason and Cabell county. Continued loan growth
within these newer market areas is expected. Management believes the allowance
is adequate to absorb inherent losses in the portfolio based on collateral
values as well as a large portfolio mix of real estate mortgages. A
comprehensive analysis of the allowance for loan and lease loss is performed on
a quarterly basis to estimate its adequacy. As a percentage of total loans, the
allowance for loan losses at June 30, 2001 and December 31, 2000 was 1.20%.
Although total deposits have declined through the first half of 2001, savings
and interest-bearing demand deposits have increased by $3,591 or 3.1%. The
Company's Gold Club account continues to be successful in this area of deposit
growth offering customers a NOW account with other banking benefits. In
addition, non-interest bearing demand deposits have increased $3,979 or 8.3%
during the same
10
period. This growth was completely offset by a decline in time deposits of
$11,035 or 4.1%, particularly jumbo certificates of deposit. During the first
half of 2001, management has been less aggressive in the pricing of its CD
portfolio and has focused their loan funding efforts on less costly sources of
funds (i.e. Federal Home Loan Bank borrowings).
Other borrowed funds are primarily advances from the Federal Home Loan Bank,
which are used to fund loan growth or short-term liquidity needs. Other borrowed
funds are up $16,143 from December 31, 2000. Management has focused on this
source of funding based on lower interest rates and the ability to borrow for
longer time periods as compared to traditional CD customers. The increase
occurred primarily in long-term FHLB borrowings. Additionally, securities sold
under agreements to repurchase are up $1,147 from December 31, 2000.
Total shareholders' equity at June 30, 2001 of $45,426 was up by $934 as
compared to the balance of $44,492 on December 31, 2000. Contributing to this
increase was year-to-date comprehensive income of $2,672 less cash dividends
paid of $1,078, or $.16 per share. This cash dividend represents 47.7% of
year-to-date net income. There were minimal proceeds from the issuance of common
stock through the dividend reinvestment plan during the first half of 2001.
Management has instead utilized the proceeds from reinvested dividends and
voluntary cash to purchase shares on the open market and redistribute these
dollars back into the plan without the need for the issuance of common stock.
Furthermore, as part of the stock repurchase program, the Company purchased
26,100 additional treasury shares which lowered equity by $660 during the first
half of 2001. The stock repurchase program limits the purchase of shares to 5%
of the total shares outstanding. As of July 31, 2001, the Company had over
69,200 shares available to purchase.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,154 for the second quarter and $2,261
for the first six months of 2001, up by 16.4% and 10.7% compared to $991 and
$2,043 for the same periods in 2000. Comparing year-to-date June 30, 2001 to
June 30, 2000, return on assets increased from .77% to .80% and return on equity
increased from 9.66% to 10.19%. Second quarter earnings per share was $.33 per
share, up 17.9% over last year's $.28 per share. During the first six months of
2001, earnings per share was $.65 per share, up 12.1% from last year's $.58 per
share. The primary contributor to the gain in net income was noninterest income
which exceeded the second quarter and year-to-date of last year by $445 and
$848.
Net interest income increased $464 or 8.7% for the second quarter and $361 or
3.4% over the first six months in 2001 as compared to the same periods in 2000.
The increase in net interest income was primarily due to the growth in earning
assets of $13,048 from December 31, 2000. Furthermore, during the first half of
2001, the Company's fixed rate liabilities have been repricing downward at a
faster pace than fixed rate assets resulting in increases to the net interest
margin. For additional discussion on the Company's rate sensitivity assets and
liabilities, please see Item 3, Quantitative and Qualitative Disclosure About
Market Risk on page 14.
The increase in net interest income for the second quarter of 2001 was reduced
by an increase to
11
provision expense of $239 for the same period as compared to 2000. The increase
in net interest income during the first six months of 2001 was offset by an
increase to provision expense of $364 for the same period as compared to 2000.
The increase in net interest income after provision for the second quarter of
2001 was offset only slightly by an increase in net noninterest expense of $7 or
.2% for the same period. For the first six months of 2001, the decrease in net
interest income after provision was offset by a decline in net noninterest
expense of $291 or 4.1% for the same period. Total noninterest income increased
$445 or 51.4% for the second quarter and $848 or 52.1% over the first six months
in 2001 as compared to the same periods in 2000. Contributing most to this gain
was service charge income, impacted by the addition of new products and services
as well as the growth in transaction account volume, which contributed an
additional $384 and $749 during the second quarter and year-to-date periods of
2001 as compared to the same periods in 2000. Total noninterest expense
increased $452 or 10.3% and $557 or 6.4% for the second quarter and year-to-date
periods of 2001 as compared to the same periods in 2000. Contributing the most
to this increase was salary and employee benefits, which are up $248 over the
second quarter of 2000 and are up $240 over the first six months of 2000. These
increases were affected mostly by general increases from annual merit increases
as well as increases to incentive compensation plans as a result of continued
success in earnings. The growth in additional offices and fixed assets
experienced in 1999 and 2000 has been stable throughout the first half of 2001.
This has provided for the decrease in occupancy expense and furniture and
equipment expense, which are collectively down $81 and $111 during the second
quarter and year-to-date periods of 2001 as compared to 2000. Furthermore, data
processing and other operating expense are up $285 and $428 over the second
quarter and year-to-date periods of 2001 as compared to 2000 due to new computer
software depreciation and general increases in overhead expenses.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
June 30, 2001 December 31, 2000 Minimum
------------- ----------------- ------------
Tier 1 risk-based capital 10.8% 11.2% 4.00%
Total risk-based capital ratio 12.0% 12.5% 8.00%
Leverage ratio 8.4% 8.5% 4.00%
Cash dividends paid of $1,078 for the first six months of 2001 represents a 5.4%
increase over the cash dividends paid during the same period in 2000. The
increase in cash dividends paid is largely due to the increase in the dividend
rate paid per share. At June 30, 2001, approximately 73% of the shareholders
were enrolled in the dividend reinvestment plan. As part of the Company's stock
repurchase program, management has continued to utilize reinvested dividends and
voluntary cash to purchase shares on the open market to be redistributed through
the dividend reinvestment plan.
On February 28, 2001, the Company along with two other financial holding
companies acquired BSG Title Services, a title insurance company based in
Delaware, Ohio. The Company secured a 40% minority interest in this company by
investing $20. The new acquisition takes advantage of the
12
Gramm-Leach-Bliley Act and further expands the Company's products and services.
LIQUIDITY
Liquidity relates to the Bank's ability to meet the cash demands and credit
needs of its customers and is provided by the ability to readily convert assets
to cash and raise funds in the market place. Total cash and cash equivalents,
interest-bearing deposits with banks, held-to-maturity securities maturing
within one year and securities available-for-sale of $69,675 represented 12.1%
of total assets at June 30, 2001. 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. At June 30, 2001, the Bank could borrow an additional
$62 million from the Federal Home Loan Bank. The Company experienced an increase
of $2,953 in cash and cash equivalents for the six months ended June 30, 2001.
See the condensed consolidated statement of cash flows on page 4 for further
cash flow information.
CONCENTRATION OF CREDIT RISK
The Company maintains a diversified credit portfolio, with real estate loans
comprising the most significant portion. Credit risk is primarily subject to
loans made to businesses and individuals in central and southeastern Ohio as
well as western West Virginia. Management believes this risk to be general in
nature, as there are no material concentrations of loans to any industry or
consumer group. To the extent possible, the Company diversifies its loan
portfolio to limit credit risk by avoiding industry concentrations.
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.
13
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
(dollars in thousands)
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The following table 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. As compared to 12/31/00, there were no significant changes through the first six months of 2001.
As of June 30, 2001 Principal Amount Maturing in:
There- Fair Value
2001 2002 2003 2004 2005 after Total 06/30/01
Rate-Sensitive Assets:
Fixed interest rate loans $ 7,556 $ 7,176 $ 12,731 $ 20,698 $ 24,432 $235,188 $307,781 $312,031
Average interest rate 10.17% 11.88% 11.98% 10.62% 9.97% 8.16% 8.76%
Variable interest rate loans $ 29,253 $ 19,187 $ 1,857 $ 4,700 $ 4,730 $104,294 $164,021 $165,113
Average interest rate 9.26% 7.89% 7.97% 7.84% 8.25% 8.17% 8.32%
Fixed interest rate securities $ 8,535 $ 13,243 $ 6,867 $ 10,689 $ 8,803 $ 15,578 $ 63,715 $ 65,525
Average interest rate 6.09% 5.88% 6.54% 6.57% 7.29% 6.96% 6.55%
Federal Funds Sold $ 3,750 $ 3,750 $ 3,750
Average interest rate 3.99% 3.99%
Other interest-bearing assets $ 952 $ 952 $ 952
Average interest rate 2.74% 2.74%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 7,436 $ 6,365 $ 5,449 $ 4,664 $ 3,993 $ 23,733 $ 51,640 $ 51,640
Savings & Interest-bearing checking $ 20,377 $ 16,817 $ 13,902 $ 11,511 $ 9,545 $ 48,373 $120,525 $120,525
Average interest rate 2.69% 2.71% 2.74% 2.76% 2.78% 2.90% 2.80%
Time deposits $105,572 $108,012 $ 35,202 $ 3,953 $ 1,866 $ 2,136 $256,741 $260,632
Average interest rate 6.11% 5.73% 5.93% 5.85% 6.58% 6.75% 5.93%
Fixed interest rate borrowings $ 9,539 $ 14,742 $ 13,931 $ 9,485 $ 2,612 $ 19,230 $ 69,539 $ 69,597
Average interest rate 5.93% 5.46% 5.37% 5.35% 5.49% 6.89% 5.89%
Variable interest rate borrowings $ 24,718 $ 24,718 $ 24,718
Average interest rate 3.29% 3.29%
(Continued)
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MATURITY ANALYSIS
================================================================================
Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued)
The decline in prime rate during the first half of 2001 had an immediate impact
on the Company's net interest margin due to variable rate assets tied to prime
exceeding variable rate liabilities tied to prime. As the year progresses,
management expects that impact to be offset by a larger volume of fixed rate
liabilities repricing downward quicker than fixed rate assets. Based on the gap
model, the Company's one year cumulative gap is liability sensitive, which
should benefit the Company over the long term in a declining rate environment.
Part II - Other Information
Item 1 - Legal Proceedings
- --------------------------
None
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Ohio Valley Banc Corp held its Annual Meeting of Shareholders on April 11,
2001, for the purpose of electing directors. Shareholders received proxy
materials containing the information required by this item. Three directors,
Steven B. Chapman, Robert H. Eastman and Jeffrey E. Smith were nominated for
reelection and were reelected. The summary of voting of the 2,743,603 shares
outstanding were as follows:
Director Candidate Shares voted: For Against Abstain
- ------------------ --- ------- -------
Steven B. Chapman 2,735,287 8,316
Robert H. Eastman 2,732,726 10,877
Jeffrey E. Smith 2,736,603 7,000
Directors with terms expiring in 2002 are Phil A. Bowman, W. Lowell Call and
James L. Dailey. Directors with terms expiring in 2003 are Merrill L. Evans,
Lannes C. Williamson and Thomas E. Wiseman.
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
B. No reports on Form 8-K were filed for the quarter ending June 30, 2001.
OHIO VALLEY BANC CORP
---------------------
Date August 13, 2001 /s/ Jeffrey E. Smith
--------------- ---------------------
Jeffrey E. Smith
President and Chief Executive Officer
Date August 13, 2001 /s/ Larry E. Miller, II
--------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
================================================================================
15