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:
SEPTEMBER 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 October 31, 2001
3,442,716 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED SEPTEMBER 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)
================================================================================
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 13,768 $ 14,569
Federal funds sold 14,650
------------- ------------
Total cash and cash equivalents 28,418 14,569
Interest-bearing balances with banks 871 816
Securities available-for-sale 54,384 59,819
Securities held-to-maturity
(estimated fair value: 2001 - $15,788,
2000 - $16,111) 15,085 15,767
Total loans 496,394 448,303
Less: Allowance for loan losses (6,025) (5,385)
------------- ------------
Net loans 490,369 442,918
Premises and equipment, net 8,865 9,285
Accrued income receivable 3,752 4,104
Intangible assets, net 1,299 1,396
Bank owned life insurance 10,925 9,408
Other assets 3,763 3,576
------------- -------------
Total assets $ 617,731 $ 561,658
============= =============
LIABILITIES
Noninterest-bearing deposits $ 51,124 $ 47,661
Interest-bearing deposits 405,074 384,710
------------- -------------
Total deposits 456,198 432,371
Securities sold under agreements to repurchase 18,535 18,345
Other borrowed funds 81,830 53,622
Obligated mandatorily redeemable capital securities
of subsidiary trust 5,000 5,000
Accrued liabilities 10,015 7,828
------------- -------------
Total liabilities 571,578 517,166
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2001 - 3,564,706 shares
issued, 2000 - 3,559,770 shares issued) 3,565 3,560
Additional paid-in capital 28,881 28,760
Retained earnings 15,667 13,817
Accumulated other comprehensive income 1,244 436
Treasury stock at cost (2001 - 116,990 shares,
2000 - 72,489 shares) (3,204) (2,081)
------------- -------------
Total shareholders' equity 46,153 44,492
------------- -------------
Total liabilities and
shareholders' equity $ 617,731 $ 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 Nine months ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Interest and dividend income:
Loans, including fees $ 11,145 $ 10,437 $ 32,261 $ 29,810
Securities:
Taxable 666 862 2,202 2,522
Tax exempt 190 204 575 587
Dividends 82 82 244 231
Other Interest 76 42 267 229
--------- --------- --------- ---------
12,159 11,627 35,549 33,379
Interest expense:
Deposits 4,729 5,338 14,907 14,871
Repurchase agreements 158 227 486 595
Other borrowed funds 1,046 717 2,710 1,974
Obligated mandatorily redeemable
capital securities of
subsidiary trust 132 397
--------- --------- --------- ---------
6,065 6,282 18,500 17,440
--------- --------- --------- ---------
Net interest income 6,094 5,345 17,049 15,939
Provision for loan losses 1,092 456 2,165 1,165
--------- --------- --------- ---------
Net interest income after provision 5,002 4,889 14,884 14,774
Noninterest income:
Service charges on deposit accounts 757 432 2,229 1,155
Trust fees 53 52 168 163
Income from bank owned insurance 146 130 430 374
Other 316 276 923 826
--------- --------- --------- ---------
1,272 890 3,750 2,518
Noninterest expense:
Salaries and employee benefits 2,464 2,267 7,417 6,981
Occupancy expense 317 354 943 1,019
Furniture and equipment expense 267 319 806 930
Data processing expense 185 144 408 332
Other 1,346 1,174 4,238 3,671
--------- --------- --------- ---------
4,579 4,258 13,812 12,933
--------- --------- --------- ---------
Income before income taxes 1,695 1,521 4,822 4,359
Provision for income taxes 475 422 1,340 1,217
--------- --------- --------- ---------
NET INCOME $ 1,220 $ 1,099 $ 3,482 $ 3,142
========= ========= ========= =========
Earnings per share $ 0.35 $ 0.31 $ 1.00 $ 0.89
========= ========= ========= =========
================================================================================
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 Nine months ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Balance at beginning of period $ 45,426 $ 42,677 $ 44,492 $ 42,708
Comprehensive income:
Net income 1,220 1,099 3,482 3,142
Net change in unrealized
gain or loss on available-for-sale
securities 398 443 808 303
--------- --------- --------- ---------
Total comprehensive income 1,618 1,542 4,290 3,445
Proceeds from issuance of common
stock through dividend reinvestment
plan 125 124 125 317
Cash dividends (553) (527) (1,631) (1,550)
Shares acquired for treasury (463) (535) (1,123) (1,639)
--------- --------- --------- ---------
Balance at end of period $ 46,153 $ 43,281 $ 46,153 $ 43,281
========= ========= ========= =========
================================================================================
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)
================================================================================
Nine months ended September 30,
2001 2000
------------ ------------
Net cash provided by operating activities $ 8,000 $ 7,613
Investing activities
Proceeds from maturities of
securities available-for-sale 20,164 4,171
Purchases of securities available-
for-sale (13,270) (6,876)
Proceeds from maturities of
securities held-to-maturity 1,464 1,226
Purchases of securities held-to-maturity (822) (2,450)
Change in interest-bearing deposits
in other banks (55) (294)
Net increase in loans (49,616) (31,832)
Purchases of premises and equipment, net (467) (754)
Purchases of insurance contracts, net (1,145) (905)
------------ ------------
Net cash used in investing activities (43,747) (37,714)
Financing activities
Change in deposits 23,827 29,825
Cash dividends (1,631) (1,550)
Proceeds from issuance of common stock 125 317
Purchases of treasury stock (1,123) (1,639)
Change in securities sold under
agreements to repurchase 190 843
Proceeds from long-term borrowings 39,125 12,250
Repayment of long-term borrowings (8,882) (12,052)
Change in other short-term borrowings (2,035) (2,616)
------------ ------------
Net cash from financing activities 49,596 25,378
------------ ------------
Change in cash and cash equivalents 13,849 (4,723)
Cash and cash equivalents at beginning of year 14,569 19,000
------------ ------------
Cash and cash equivalents at September 30, $ 28,418 $ 14,277
============ ============
Cash paid for interest $ 18,894 $ 16,677
Cash paid for income taxes 1,912 1,155
================================================================================
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 September 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 3,456,661 and
3,513,844 for the three months ending September 30, 2001 and September 30, 2000,
respectively. Weighted average shares outstanding were 3,467,768 and 3,523,399
for the nine months ending September 30, 2001 and September 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
September 30, 2001 ---------- ----------- ------------ ---------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 1,978 $ 1,978
U.S. Government agency
securities 44,031 1,840 $ (1) 45,870
Mortgage-backed securities 1,779 46 1,825
Equity securities 4,711 4,711
---------- ----------- ------------ ---------
Total securities $ 52,499 $ 1,886 $ (1) $ 54,384
========== =========== ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 14,866 $ 723 $ (13) $ 15,576
Mortgage-backed securities 219 (7) 212
---------- ----------- ------------ ---------
Total securities $ 15,085 $ 723 $ (20) $ 15,788
========== =========== ============ =========
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 September 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 $ 19,908 $ 20,098 $ 1,449 $ 1,461
Due in one to
five years 26,101 27,750 6,556 6,910
Due in five to
ten years 4,423 4,644
Due after ten years 2,438 2,561
Mortgage-backed sec. 1,779 1,825 219 212
------------ ----------- ----------- -----------
Total debt
securities $ 47,788 $ 49,673 $ 15,085 $ 15,788
============ =========== =========== ===========
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 nine months of 2001 and 2000.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
September 30, December 31,
2001 2000
---------------- ----------------
Real estate loans $ 222,345 $ 209,724
Commercial and industrial loans 166,827 139,826
Consumer loans 106,603 98,013
Other loans 619 740
---------------- ----------------
$ 496,394 $ 448,303
================ ================
At September 30, 2001 and December 31, 2000, loans on nonaccrual status were
approximately $3,879 and $2,948, respectively. Loans past due more than 90 days
and still accruing at September 30, 2001 and December 31, 2000 were $3,157 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 nine months ended
September 30 is as follows:
2001 2000
---------------- ----------------
Balance - January 1, $ 5,385 $ 5,055
Loans charged off:
Real estate 268 43
Commercial 218 15
Consumer 1,473 1,137
------------------ -----------------
Total loans charged off 1,959 1,195
Recoveries of loans:
Real estate 49 4
Commercial 17
Consumer 368 184
------------------ -----------------
Total recoveries 434 188
------------------ -----------------
Net loan charge-offs (1,525) (1,007)
Provision charged to operations 2,165 1,165
------------------ -----------------
Balance - September 30, $ 6,025 $ 5,213
================== =================
Information regarding impaired loans is as follows:
September 30, December 31,
2001 2000
-------------- ---------------
Balance of impaired loans $ 837 $ 1,233
============== ===============
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $ 837 $ 1,233
============== ===============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 410 $ 530
============== ===============
Average investment in impaired loans
year-to-date $ 1,116 $ 1,266
============== ===============
Interest on impaired loans was not material for the periods ended September
30, 2001 and September 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
5.11% of total loans were unsecured at September 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
September 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 $51,810 as compared to $52,135 at
December 31, 2000.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at September 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 $ 71,297 $ 5,033 $ 5,500 $ 81,830
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 $106,945
and $4,711 at September 30, 2001. Fixed rate FHLB advances of $71,297 mature
through 2010 and have interest rates ranging from 4.49% to 6.69%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 4.88% to 7.00% and are due at various dates through a final maturity date of
August 31, 2002.
Scheduled principal payments at 9/30/2001 are:
12/31 FHLB borrowings Promissory notes FRB Notes Totals
- ----- --------------- ---------------- --------- ----------
2001 $ 4,978 $ 1,500 $ 5,500 $ 11,978
2002 13,015 3,533 16,548
2003 13,932 13,932
2004 12,486 12,486
2005 8,614 8,614
Thereafter 18,272 18,272
---------------- ---------------- ---------- ----------
$ 71,297 $ 5,033 $ 5,500 $ 81,830
================ ================ ========== ==========
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $31,380 at September 30,
2001 and $33,100 at December 31, 2000. Various investment securities from the
Bank used to collateralize FRB notes totaled $6,170 at September 30, 2001 and
$9,165 at December 31, 2000. Promissory notes were unsecured at September 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 September 30, 2001, compared to December 31, 2000, and the
consolidated results of operations for the quarterly and year-to-date periods
ending September 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 $56,073 or
10.0% during the first nine months to reach $617,731 at September 30, 2001. The
factor contributing most to this growth in assets was loans which grew $48,091
or 10.7%. Loans were funded by long-term FHLB borrowings which increased $30,243
or 73.7% and growth in deposits which increased $23,827 or 5.5%. 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 $6,117
or 8.1%. 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 nine months of 2001, loan growth was led by commercial loans
expanding $27,001 or 19.3%. This growth came mostly from loan originations
within the Gallia, Jackson and Franklin counties of Ohio which accounted for 74%
of the total increase. In addition, approximately 11% of commercial loan
originations came from the West Virginia market areas. For the same period, real
estate mortgages grew $12,621 or 6.0%, 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. In addition,
consumer loans increased $8,590 or 8.8%. Virtually all of this increase occurred
within indirect loans, particularly automobiles, where management has been more
aggressive in its pricing of these products. Management believes the allowance
is adequate to absorb probable and estimable 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 loss is performed on a
quarterly basis to estimate its adequacy. As a percentage of total loans, the
allowance for loan losses at September 30, 2001 was 1.21%, up from 1.20% at
December 31, 2000.
Total deposit growth was led by savings and interest-bearing demand deposits
which increased by $20,615 or 17.6%. The Company's Gold Club product, offering
customers a NOW account with other banking benefits, generated 22% of this
overall growth in deposits and continues to be successful
10
through the first nine months of 2001. In addition, nearly $11,000 of additional
deposit dollars were recognized within a few of the Company's large commercial
deposit accounts. A portion of these deposits are temporary. Furthermore,
non-interest bearing demand deposits increased $3,463 or 7.3% during the same
period. This growth was slightly offset by a decline in time deposits of $251 or
.1%, particularly jumbo certificates of deposit. During the first nine months 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 $28,208 from December 31, 2000. Management has focused on this
source of funding based on lower interest rates experienced through the
year-to-date period of 2001 and the ability to borrow for longer time periods as
compared to traditional CD customers. The increase occurred primarily in
long-term FHLB borrowings.
Total shareholders' equity at September 30, 2001 of $46,153 was up by $1,661 as
compared to the balance of $44,492 on December 31, 2000. Contributing to this
increase was year-to-date comprehensive income of $4,290 less cash dividends
paid of $1,631, or $.47 per share. This cash dividend represents 46.8% of
year-to-date net income. There were minimal proceeds from the issuance of common
stock through the dividend reinvestment plan during the first nine months 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
44,501 additional treasury shares which lowered equity by $1,123 during the
first nine months of 2001. The stock repurchase program limits the purchase of
shares to 5% of the total shares outstanding. As of October 31, 2001, the
Company had over 50,100 shares available to purchase.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,220 for the third quarter and $3,482
for the first nine months of 2001, up by 11.0% and 10.8% compared to $1,099 and
$3,142 for the same periods in 2000. Comparing year-to-date September 30, 2001
to September 30, 2000, return on assets increased from .78% to .80% and return
on equity increased from 9.86% to 10.35%. Third quarter earnings per share was
$.35 per share, up 12.9% over last year's $.31 per share. During the first nine
months of 2001, earnings per share was $1.00 per share, up 12.4% from last
year's $.89 per share. The primary contributors to the gain in net income was
the continued increase to the Company's net interest margin as well as increases
to noninterest income which exceeded the third quarter and year-to-date of last
year by $382 and $1,232.
Net interest income increased $749 or 14.0% for the third quarter and $1,110 or
7.0% over the first nine 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 $42,029 from December 31, 2000. Furthermore, during the first nine
months 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
11
Qualitative Disclosure About Market Risk on page 14.
The increase in net interest income for the third quarter of 2001 was reduced by
an increase to provision expense of $636 for the same period as compared to
2000. The increase in net interest income during the first nine months of 2001
was offset by an increase to provision expense of $1,000 for the same period as
compared to 2000. The year-to-date increase to provision expense was a result of
an increase to charge offs, primarily commercial and consumer loans. The
increase in net interest income after provision for the third quarter of 2001
was further strengthened by a decrease in net noninterest expense of $61 or 1.8%
for the same period. For the first nine months of 2001, the increase in net
interest income after provision was further strengthened by a decrease in net
noninterest expense of $353 or 3.4% for the same period. Total noninterest
income increased $382 or 42.9% for the third quarter and $1,232 or 48.9% over
the first nine 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 $325 and $1,074 during the third
quarter and year-to-date periods of 2001 as compared to the same periods in
2000. The quarterly increases to service charge income in 2001 as compared to
2000 are not expected to continue due to the implementation of these new
products and services in the fourth quarter of 2000. Total noninterest expense
increased $321 or 7.5% and $879 or 6.8% for the third 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 $197 over the
third quarter of 2000 and are up $436 over the first nine 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 nine months of
2001. This has provided for the decrease in occupancy expense and furniture and
equipment expense, which are collectively down $89 and $200 during the third
quarter and year-to-date periods of 2001 as compared to 2000. Furthermore, data
processing and other operating expense are up $213 and $643 over the third
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
September 30, 2001 December 31, 2000 Minimum
------------------ ----------------- ----------
Tier 1 risk-based capital 10.0% 11.2% 4.00%
Total risk-based capital ratio 11.2% 12.5% 8.00%
Leverage ratio 8.1% 8.5% 4.00%
Cash dividends paid of $1,631 for the first nine months of 2001 represents a
5.2% 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 September 30, 2001, approximately 74% of the
12
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.
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 $85,122 represented 13.8%
of total assets at September 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 September 30, 2001, the Bank could borrow
an additional $48 million from the Federal Home Loan Bank. The Company
experienced an increase of $13,849 in cash and cash equivalents for the nine
months ended September 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 nine months of 2001.
As of September 30, 2001 Principal Amount Maturing in:
There- Fair Value
2001 2002 2003 2004 2005 after Total 09/30/01
Rate-Sensitive Assets:
Fixed interest rate loans $ 7,154 $ 7,478 $ 10,996 $ 18,670 $ 25,591 $262,795 $332,684 $335,888
Average interest rate 10.32% 11.24% 12.21% 10.74% 10.16% 8.07% 8.63%
Variable interest rate loans $ 12,477 $ 41,639 $ 1,663 $ 4,336 $ 4,070 $ 99,525 $163,710 $165,225
Average interest rate 9.01% 7.32% 7.38% 7.21% 7.60% 7.82% 7.76%
Fixed interest rate securities $ 6,557 $ 19,166 $ 6,869 $ 10,688 $ 8,808 $ 15,496 $ 67,584 $ 70,172
Average interest rate 5.12% 5.00% 6.54% 6.57% 7.29% 6.89% 6.55%
Federal Funds Sold $ 14,650 $ 14,650 $ 14,650
Average interest rate 3.01% 3.01%
Other interest-bearing assets $ 871 $ 871 $ 871
Average interest rate 2.20% 2.20%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 7,362 $ 6,302 $ 5,394 $ 4,617 $ 3,953 $ 23,496 $ 51,124 $ 51,124
Savings & Interest-bearing checking $ 23,168 $ 19,146 $ 15,845 $ 13,133 $ 10,899 $ 55,357 $137,548 $137,548
Average interest rate 2.50% 2.52% 2.54% 2.56% 2.58% 2.67% 2.59%
Time deposits $ 62,570 $131,387 $ 43,430 $ 15,317 $ 9,372 $ 5,450 $267,526 $272,642
Average interest rate 6.01% 5.46% 5.67% 5.29% 5.30% 5.71% 5.93%
Fixed interest rate borrowings $ 6,479 $ 16,547 $ 13,932 $ 12,486 $ 8,614 $ 23,272 $ 81,330 $ 84,030
Average interest rate 6.08% 5.41% 5.37% 5.30% 5.42% 6.67% 5.80%
Variable interest rate borrowings $ 24,035 $ 24,035 $ 24,035
Average interest rate 2.94% 2.94%
(Continued)
14
MATURITY ANALYSIS
================================================================================
Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued)
The decline in prime rate during the first nine months 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
- ------------------------------------------------------------
None
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 September 30, 2001.
OHIO VALLEY BANC CORP
---------------------
Date November 14, 2001 /s/ Jeffrey E. Smith
----------------- ---------------------
Jeffrey E. Smith
President and Chief Executive Officer
Date November 14, 2001 /s/ Larry E. Miller, II
----------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
================================================================================
15