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, 2002
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, 2002
3,445,739 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
================================================================================
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
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....... 11
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk......................................... 15
Item 4 - Controls and Procedures................................ 16
Part II - Other Information
Other Information and Signatures................................ 16
Certifications.................................................. 17
Exhibit Index - 99.1 Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.......................... 19
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
================================================================================
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 19,592 $ 17,288
Federal funds sold 12,300 9,000
------------- ------------
Total cash and cash equivalents 31,892 26,288
Interest-bearing balances with banks 1,495 1,264
Securities available-for-sale 63,338 61,559
Securities held-to-maturity
(estimated fair value: 2002 - $16,193,
2001 - $14,421) 15,119 13,973
Total loans 560,566 508,660
Less: Allowance for loan losses (6,982) (6,251)
------------- ------------
Net loans 553,584 502,409
Premises and equipment, net 8,346 8,702
Accrued income receivable 3,512 3,420
Intangible assets, net 1,169 1,267
Bank owned life insurance 12,526 12,089
Other assets 4,199 4,028
------------- -------------
Total assets $ 695,180 $ 634,999
============= =============
LIABILITIES
Noninterest-bearing deposits $ 56,438 $ 56,735
Interest-bearing deposits 450,196 399,126
------------- -------------
Total deposits 506,634 455,861
Securities sold under agreements to repurchase 26,163 29,274
Other borrowed funds 91,299 90,856
Obligated mandatorily redeemable capital securities
of subsidiary trust 13,500 5,000
Accrued liabilities 8,435 7,708
------------- -------------
Total liabilities 646,031 588,699
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2002 - 3,602,854 shares
issued, 2001 - 3,579,250 shares issued) 3,603 3,579
Additional paid-in capital 29,751 29,207
Retained earnings 18,264 15,979
Accumulated other comprehensive income 1,441 1,043
Treasury stock at cost (2002 - 147,115 shares,
2001 - 129,990 shares) (3,910) (3,508)
------------- -------------
Total shareholders' equity 49,149 46,300
------------- -------------
Total liabilities and
shareholders' equity $ 695,180 $ 634,999
============= =============
================================================================================
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,
2002 2001 2002 2001
--------- --------- --------- ---------
Interest and dividend income:
Loans, including fees $ 11,159 $ 11,145 $ 32,746 $ 32,261
Securities:
Taxable 652 666 1,949 2,202
Tax exempt 190 190 551 575
Dividends 58 82 169 244
Other Interest 60 76 200 267
--------- --------- --------- ---------
12,119 12,159 35,615 35,549
Interest expense:
Deposits 3,827 4,729 11,467 14,907
Repurchase agreements 85 158 280 486
Other borrowed funds 1,114 1,046 3,316 2,710
Obligated mandatorily redeemable
capital securities of
subsidiary trust 254 132 644 397
--------- --------- --------- ---------
5,280 6,065 15,707 18,500
--------- --------- --------- ---------
Net interest income 6,839 6,094 19,908 17,049
Provision for loan losses 1,541 1,092 3,495 2,165
--------- --------- --------- ---------
Net interest income after provision 5,298 5,002 16,413 14,884
Noninterest income:
Service charges on deposit accounts 806 757 2,301 2,229
Trust fees 51 53 164 168
Income from bank owned insurance 172 146 512 430
Other 395 316 1,141 923
--------- --------- --------- ---------
1,424 1,272 4,118 3,750
Noninterest expense:
Salaries and employee benefits 2,726 2,464 8,045 7,417
Occupancy expense 324 317 959 943
Furniture and equipment expense 280 267 814 806
Data processing expense 144 185 435 408
Other 1,278 1,346 4,682 4,238
--------- --------- --------- ---------
4,752 4,579 14,935 13,812
--------- --------- --------- ---------
Income before income taxes 1,970 1,695 5,596 4,822
Provision for income taxes 560 475 1,582 1,340
--------- --------- --------- ---------
NET INCOME $ 1,410 $ 1,220 $ 4,014 $ 3,482
========= ========= ========= =========
Earnings per share $ 0.41 $ 0.35 $ 1.16 $ 1.00
========= ========= ========= =========
================================================================================
See notes to the consolidated financial statements.
2
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Balance at beginning of period $ 47,991 $ 45,426 $ 46,300 $ 44,492
Comprehensive income:
Net income 1,410 1,220 4,014 3,482
Net change in unrealized
gain or loss on available-for-sale
securities 340 398 398 808
--------- --------- --------- ---------
Total comprehensive income 1,750 1,618 4,412 4,290
Proceeds from issuance of common
stock through dividend reinvestment
plan 237 125 568 125
Cash dividends (588) (553) (1,729) (1,631)
Shares acquired for treasury (241) (463) (402) (1,123)
--------- --------- --------- ---------
Balance at end of period $ 49,149 $ 46,153 $ 49,149 $ 46,153
========= ========= ========= =========
Cash dividends per share $ 0.17 $ 0.16 $ 0.50 $ 0.47
========= ========= ========= =========
================================================================================
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,
2002 2001
------------ ------------
Net cash provided by operating activities $ 8,207 $ 8,000
Investing activities
Proceeds from maturities of
securities available-for-sale 26,413 20,164
Purchases of securities available-
for-sale (27,467) (13,270)
Proceeds from maturities of
securities held-to-maturity 602 1,464
Purchases of securities held-to-maturity (1,779) (822)
Change in interest-bearing deposits
in other banks (231) (55)
Net increase in loans (54,670) (49,616)
Purchases of premises and equipment (513) (467)
Purchases of insurance contracts (1,145)
------------ ------------
Net cash used in investing activities (57,645) (43,747)
Financing activities
Change in deposits 50,773 23,827
Cash dividends (1,729) (1,631)
Proceeds from issuance of common stock 568 125
Purchases of treasury stock (402) (1,123)
Change in securities sold under
agreements to repurchase (3,111) 190
Proceeds from obligated mandatorily redeemable
capital securities of subsidiary trust 8,500
Proceeds from long-term borrowings 9,040 39,125
Repayment of long-term borrowings (10,317) (8,882)
Change in other short-term borrowings 1,720 (2,035)
------------ ------------
Net cash from financing activities 55,042 49,596
------------ ------------
Change in cash and cash equivalents 5,604 13,849
Cash and cash equivalents at beginning of year 26,288 14,569
------------ ------------
Cash and cash equivalents at September 30, $ 31,892 $ 28,418
============ ============
Cash paid for interest $ 16,851 $ 18,894
Cash paid for income taxes 2,270 1,912
================================================================================
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,
Loan Central, Inc. and Ohio Valley Financial Services Agency, LLC., 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, 2002, 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 (US GAAP) that might otherwise be necessary in the circumstances. The
Annual Report for Ohio Valley Banc Corp for the year ended December 31, 2001,
contains consolidated financial statements and related notes which should be
read in conjunction with the accompanying consolidated financial statements.
The accounting and reporting policies followed by the Company conform to US GAAP
and to general practices within the financial services industry. The preparation
of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates. The
allowance for loan losses is particularly subject to change.
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 3,459,337 and
3,456,661 for the three months ending September 30, 2002 and September 30, 2001,
respectively. Weighted average shares outstanding were 3,459,768 and 3,467,768
for the nine months ending September 30, 2002 and September 30, 2001,
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.
================================================================================
(Continued)
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 is no longer amortized, but rather is
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, continue to be amortized over
their estimated useful lives. The Company adopted this statement on January 1,
2002, and did not materially impact its financial statements.
On October 1, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of
Certain Financial Institutions." SFAS No. 147 is effective October 1, 2002 and
may be early applied. SFAS No. 147 supersedes SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions." SFAS No. 147 provides
guidance on the accounting for the acquisition of a financial institution, and
applies to all such acquisitions except those between two or more mutual
enterprises. Under SFAS No. 147, the excess of the fair value of liabilities
assumed over the fair value of tangible and identified intangible assets
acquired in a financial institution business combination represents goodwill
that should be accounted for under SFAS No. 142, "Goodwill and Other Intangible
Assets." If certain criteria are met, the amount of the unidentified intangible
asset resulting from prior financial acquisitions is to be reclassified to
goodwill upon adoption of this Statement. Financial institutions meeting
conditions outlined in SFAS No. 147 are required to restate previously issued
financial statements. The objective of the restatement is to present the balance
sheet and income statement as if the amount accounted for under SFAS No. 72 as
an unidentifiable asset has been reclassified to goodwill as of the date the
Company adopted SFAS No. 142. Adoption of SFAS No. 147 on October 1, 2002 did
not have a material effect on the Company's consolidated financial position or
results of operations. As of October 1, 2002, the Company reclassified $1,169 of
unidentifiable intangible assets to goodwill.
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, 2002 ---------- ----------- ------------ ---------
Securities Available-for-Sale
- -----------------------------
U.S. Government agency
securities $ 54,785 $ 2,105 $ 56,890
Mortgage-backed securities 1,424 79 1,503
Equity securities 4,945 4,945
---------- ----------- ------------ ---------
Total securities $ 61,154 $ 2,184 $ 0 $ 63,338
========== =========== ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 14,948 $ 1,093 $ (13) $ 16,028
Mortgage-backed securities 171 (6) 165
---------- ----------- ------------ ---------
Total securities $ 15,119 $ 1,093 $ (19) $ 16,193
========== =========== ============ =========
================================================================================
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 2 - SECURITIES (continued)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
December 31, 2001 ---------- ----------- ------------ ---------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 1,990 $ 3 $ 1,993
U.S. Government agency
securities 51,494 1,578 $ (16) 53,056
Mortgage-backed securities 1,719 15 1,734
Equity securities 4,776 4,776
----------- ------------ ------------ ---------
Total securities $ 59,979 $ 1,596 $ (16) $ 61,559
=========== ============ ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 13,765 $ 481 $ (25) $ 14,221
Mortgage-backed securities 208 (8) 200
----------- ------------ ------------ ---------
Total securities $ 13,973 $ 481 $ (33) $ 14,421
=========== ============ ============ =========
The amortized cost and estimated fair value of debt securities at September 30,
2002, 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 $ 14,384 $ 14,522 $ 1,814 $ 1,835
Due in one to
five years 40,401 42,368 4,559 4,865
Due in five to
ten years 5,333 5,872
Due after ten years 3,242 3,456
Mortgage-backed sec. 1,424 1,503 171 165
------------ ----------- ----------- -----------
Total debt
securities $ 56,209 $ 58,393 $ 15,119 $ 16,193
============ =========== =========== ===========
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 2002 and 2001.
================================================================================
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
September 30, December 31,
2002 2001
---------------- ----------------
Real estate loans $ 229,763 $ 226,212
Commercial and industrial loans 203,357 173,154
Consumer loans 126,763 108,437
Other loans 683 857
---------------- ----------------
$ 560,566 $ 508,660
================ ================
At September 30, 2002 and December 31, 2001, loans on nonaccrual status were
approximately $8,252 and $3,297, respectively. Loans past due more than 90 days
and still accruing at September 30, 2002 and December 31, 2001 were $1,041 and
$3,013, respectively.
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:
2002 2001
---------------- ----------------
Balance - January 1, $ 6,251 $ 5,385
Loans charged off:
Real estate 482 268
Commercial 929 218
Consumer 2,095 1,473
------------------ -----------------
Total loans charged off 3,506 1,959
Recoveries of loans:
Real estate 110 49
Commercial 137 17
Consumer 495 368
------------------ -----------------
Total recoveries 742 434
------------------ -----------------
Net loan charge-offs (2,764) (1,525)
Provision charged to operations 3,495 2,165
------------------ -----------------
Balance - September 30, $ 6,982 $ 6,025
================== =================
================================================================================
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (continued)
Information regarding impaired loans is as follows:
September 30, December 31,
2002 2001
-------------- ---------------
Balance of impaired loans $ 3,028 $ 960
============== ===============
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $ 3,028 $ 960
============== ===============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 950 $ 300
============== ===============
Average investment in impaired loans
year-to-date $ 3,477 $ 1,013
============== ===============
Interest on impaired loans was not material for the periods ended September
30, 2002 and September 30, 2001. All impaired loan balances were also included
as part of the Company's nonperforming loans at September 30, 2002.
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
4.16% of total loans were unsecured at September 30, 2002 as compared to 4.81%
at December 31, 2001.
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, 2002, 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 $62,318 as compared to $64,312 at
December 31, 2001.
================================================================================
(Continued)
9
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at September 30, 2002 and December 31, 2001 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
--------------- ---------------- --------- ----------
2002 $ 80,287 $ 5,512 $ 5,500 $ 91,299
2001 $ 81,564 $ 3,792 $ 5,500 $ 90,856
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $120,430
and $4,944 at September 30, 2002. Fixed rate FHLB advances mature through 2010
and have interest rates ranging from 3.87% to 6.62%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 2.15% to 5.25% and are due at various dates through a final maturity date of
March 1, 2004.
At September 30, 2002, scheduled principal payments over the next five years are
to be:
FHLB borrowings Promissory notes FRB Notes Totals
--------------- ---------------- --------- ----------
2002 $ 2,964 $ 2,123 $ 5,500 $ 10,587
2003 13,932 3,289 17,221
2004 17,487 100 17,587
2005 17,114 17,114
2006 14,606 14,606
Thereafter 14,184 14,184
---------------- ---------------- ---------- ----------
$ 80,287 $ 5,512 $ 5,500 $ 91,299
================ ================ ========== ==========
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $31,885 at September 30,
2002 and $29,000 at December 31, 2001. Various investment securities from the
Bank used to collateralize FRB notes totaled $6,015 at September 30, 2002 and
$5,970 at December 31, 2001.
NOTE 7 - TRUST PREFERRED SECURITIES
Obligated mandatorily redeemable capital securities of a subsidiary trust
(Trust Preferred Securities) of $8,500 were issued on March 26, 2002, and have a
current variable rate of 5.39%, that adjusts quarterly, and a mandatory
redemption date of March 26, 2032. However, beginning March 26, 2007, the
Company may, at its option, redeem all or a portion of these trust preferred
securities. Total trust preferred securities were unsecured through September
30, 2002.
================================================================================
10
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, 2002, compared to December 31, 2001, and the
consolidated results of operations for the quarterly and year-to-date periods
ending September 30, 2002, compared to the same periods in 2001. 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 $60,181 or
9.5% during the first nine months to reach $695,180 at September 30, 2002. The
factor contributing most to this growth in assets was loans which grew $51,906
or 10.2%. This strong growth in loans was funded primarily by deposits which
increased $50,773 or 11.1% and the Company's newest trust preferred security
issuance in the first quarter which totaled $8,500. A significant portion of the
deposit growth occurred in NOW accounts and time deposits.
During the first nine months of 2002, loan growth was led by commercial loans
expanding $30,203 or 17.4%. This growth came mostly from loan originations
within the primary market areas of Gallia, Jackson, Pike and Franklin counties
in Ohio which accounted for 65% of the total increase. In addition,
approximately 22% of commercial loan originations came from the growing West
Virginia market areas. For the same period, consumer loans increased $18,326 or
16.9%. Approximately 83% of this increase occurred within indirect loans,
particularly automobiles, where management has been more aggressive in its
pricing of these products. Furthermore, real estate mortgages grew $3,551 or
1.6%, with the largest portion of growth occurring within the West Virginia
market areas of Mason and Cabell county.
During the first nine months of 2002, management has continued to emphasize
improving asset quality through analysis of its loan portfolio in both the bank
and finance company operations. This emphasis has prompted a $1,239 increase in
net charge offs consisting primarily of installment and commercial nonperforming
loans. However, the Company's nonperforming loans increased to $9,216 at
September 30, 2002 compared to $7,036 at September 30, 2001 and $6,310 at year
end 2001. This increase in nonperforming loans was the result of a single
commercial line which is in process of collection. The commercial line
represented .79% of total loans, increasing the Company's nonperforming loans as
a percentage to total loans figure to 1.64% for the quarter ending September 30,
2002 compared to 1.42% at September 30, 2001 and 1.24% at year end 2001. The
allowance for loan losses was 1.25% of total loans at September 30, 2002, which
included a specific allocation of $450 for the commercial line mentioned above.
11
The 1.25% allowance for loan losses for September 30, 2002 compares to 1.21% at
September 30, 2001 and 1.23% at year end 2001. Management has increased the
ratio of allowance to total loans based on an increase in nonperforming loans
and the continued uncertainty of economic conditions. While management is
comfortable that the allowance for loan losses is adequate to absorb probable
losses in the loan portfolio, management is prepared to increase the allowance
should economic conditions dictate.
Total deposit growth during the first nine months of 2002 was primarily in time
deposits which increased $33,489 or 12.6%. This growth was partially driven by
increases in the Company's brokered certificates of deposit which totaled $7,186
through the first nine months of 2002. To accompany time deposit growth, the
Company also had strong growth in savings and interest-bearing demand deposits
which increased $17,581 or 13.3%. This growth, primarily in the Company's public
fund NOW and Gold Club accounts, is related to the changing interest rate
environment which has influenced customers to maintain their funds in more
short-term, highly liquid products such as the Bank's NOW transaction account.
In addition, non-interest bearing demand deposits have declined $297 or .5%
during the same period. Management has utilized the total deposit growth to help
fund the growth in loans and to reduce securities sold under agreements to
repurchase.
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 slightly by $443 or .5% from December 31, 2001, as management has
shifted its focus back to funding loan growth through its traditional retail
sources of funds in certificates of deposit since the cost of these retail
sources has declined significantly. The decrease in other borrowed funds
occurred primarily in overnight borrowings. Additionally, securities sold under
agreements to repurchase are down $3,111 from December 31, 2001. Furthermore, on
March 26, 2002, the Company completed an $8,500 issuance of trust preferred
securities. The proceeds from this issuance were used to enhance the Company's
risk-based capital adequacy levels as well as support the growth of additional
earning assets, particularly the strong growth in loans.
Total shareholders' equity at September 30, 2002 of $49,149 was up by $2,849 as
compared to the balance of $46,300 on December 31, 2001. Contributing most to
this increase was year-to-date income of $4,014 plus proceeds of $568 from the
issuance of common stock through the dividend reinvestment plan less cash
dividends paid of $1,729, or $.50 per share year-to-date. While cash dividends
represented 43.1% of year-to-date income, dividends net of proceeds from the
dividend reinvestment plan represented 28.9% of year-to-date income. Management
has continued to utilize the Company's stock repurchase program to meet the
demand for DRIP shares as well as other corporate purposes. Year-to-date stock
repurchases totaled $402; year-to-date dividend reinvestment plan contributions
totaled $846.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,410 for the third quarter and $4,014
for the first nine months of 2002, up by 15.6% and 15.3% compared to $1,220 and
$3,482 for the same periods in 2001. Comparing year-to-date September 30, 2002
to September 30, 2001, return on assets increased from .80% to .81% and return
on equity increased from 10.35% to 11.33%. Third quarter earnings per share was
$.41 per share, up 17.1% over last year's $.35 per share. During the first nine
months of 2002,
12
earnings per share was $1.16 per share, up 16.0% from last year's $1.00 per
share. The primary contributor to the gain in net income was strong net interest
income growth which exceeded the third quarter and year-to-date of last year by
$745 and $2,859.
The third quarter and year-to-date increases to net interest income of 12.2% and
16.8% were primarily due to the declines in total interest expense of $785 or
12.9% and $2,793 or 15.1% versus relatively no change in total interest income
due to strong loan growth. Earning assets, driven by loans, increased $58,362
from December 31, 2001 and represented 93.9% of total assets as compared to
93.6% at year end 2001. The declines in interest expense were largely impacted
by a 125 basis point decline in the Bank's average funding costs due to the
current interest rate environment. As a result, the Company's net interest
margin improved to 4.36% for the first nine months of 2002 from 4.28% the prior
year. 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 15.
The increases in net interest income for the third quarter and year-to-date
periods of 2002 were partially offset by increases to provision expense of $449
and $1,330 for the same periods as compared to 2001. The increases to provision
expense were in large part from the significant increases in net charge-offs
recognized for the same periods which, as discussed earlier, are necessary to
assist management in enhancing asset quality and lowering credit risk associated
with the Company's loan portfolio. The increases in net interest income after
provision for the third quarter and year-to-date periods of 2002 were partially
offset by increases in net noninterest expense of $21 or .6% and $755 or 7.5%
for the same periods as compared to 2001. Total noninterest income increased
$152 or 11.9% for the third quarter and $368 or 9.8% for the first nine months
in 2002 as compared to the same periods in 2001. Contributing most to this gain
were earnings from bank owned life insurance contracts, service charge income
due to growth in transaction account volume and loan service fees. Total
noninterest expense increased $173 or 3.8% and $1,123 or 8.1% for the third
quarter and year-to-date periods of 2002 as compared to the same periods in
2001. Contributing most to this third quarter and year-to-date increase were
salaries and employee benefits, the Company's largest noninterest expense, which
increased $262 or 10.6% and $628 or 8.5%. These increases were related to annual
merit increases on employee evaluations, incentive-based compensation and the
rising cost of medical insurance. Further impacting the year-to-date results was
the second quarter charge off of fraudulent checks with the impact, net of
recoveries, being $389 on other noninterest expense. Management continues to
actively seek recoveries related to this charge off. The remaining noninterest
expense categories have increased minimally from 2001.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
September 30, 2002 December 31, 2001 Minimum
------------------ ----------------- ----------
Tier 1 risk-based capital 10.6% 9.5% 4.00%
Total risk-based capital ratio 11.8% 10.7% 8.00%
Leverage ratio 8.8% 7.9% 4.00%
13
Cash dividends paid of $1,729 for the first nine months of 2002 represents a
6.0% increase over the cash dividends paid during the same period in 2001. The
increase in cash dividends paid is largely due to the increase in the dividend
rate paid per share. At September 30, 2002, 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.
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 $98,539 represented 14.2%
of total assets at September 30, 2002. 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, 2002, the Bank could borrow
an additional $47 million from the Federal Home Loan Bank. The Company
experienced an increase of $5,604 in cash and cash equivalents for the nine
months ended September 30, 2002. 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.
14
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
(dollars in thousands)
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of September 30, 2002 Principal Amount Maturing in:
There- Fair Value
2002 2003 2004 2005 2006 after Total 09/30/02
Rate-Sensitive Assets:
Fixed interest rate loans $ 3,647 $ 10,527 $ 12,309 $ 19,603 $ 24,779 $285,583 $356,448 $361,132
Average interest rate 10.60% 10.41% 10.68% 9.75% 8.76% 7.86% 8.23%
Variable interest rate loans $ 21,960 $ 28,375 $ 3,188 $ 4,316 $ 6,037 $140,242 $204,118 $205,562
Average interest rate 6.84% 5.86% 5.99% 6.31% 6.52% 6.66% 6.54%
Fixed interest rate securities $ 5,249 $ 13,132 $ 17,372 $ 22,906 $ 500 $ 17,114 $ 76,273 $ 79,531
Average interest rate 5.34% 4.64% 5.29% 5.00% 5.63% 6.22% 5.31%
Federal funds sold $ 12,300 $ 12,300 $ 12,300
Average interest rate 1.65% 1.65%
Other interest-bearing assets $ 1,495 $ 1,495 $ 1,495
Average interest rate 1.13% 1.13%
Total Rate-Sensitive Assets $ 44,651 $52,034 $ 32,869 $ 46,825 $ 31,316 $442,939 $650,634 $660,020
Average interest rate 5.35% 6.47% 7.38% 7.11% 8.28% 7.42% 7.22%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 7,676 $ 6,632 $ 5,730 $ 4,950 $ 4,277 $ 27,173 $ 56,438 $ 56,438
Savings & Interest-bearing checking $ 23,760 $ 19,931 $ 16,731 $ 14,054 $ 11,814 $ 63,724 $150,014 $150,014
Average interest rate 1.90% 1.91% 1.92% 1.93% 1.94% 2.00% 1.95%
Time deposits $ 52,338 $139,598 $ 57,802 $ 30,675 $ 10,448 $ 9,321 $300,182 $305,388
Average interest rate 3.73% 3.92% 4.12% 4.36% 4.87% 5.21% 4.24%
Fixed interest rate borrowings $ 4,986 $ 17,222 $ 17,587 $ 17,214 $ 14,606 $ 19,184 $ 90,799 $ 95,587
Average interest rate 4.48% 5.16% 4.96% 4.92% 5.22% 6.89% 5.48%
Variable interest rate borrowings $ 40,163 $ 40,163 $ 40,163
Average interest rate 2.26% 2.26%
Total Rate-Sensitive Liabilities $128,923 $183,383 $ 97,850 $ 66,893 $ 41,145 $119,402 $637,596 $647,590
Average interest rate 2.74% 3.68% 3.65% 3.67% 3.65% 2.58% 3.38%
As of December 31, 2001 Principal Amount Maturing in:
There- Fair Value
2002 2003 2004 2005 2006 after Total 12/31/01
Total Rate-Sensitive Assets $ 97,688 $ 17,119 $ 31,670 $ 40,920 $ 30,418 $370,285 $588,100 $595,178
Average interest rate 5.70 9.20% 8.82% 8.59% 8.26% 7.74% 7.59%
Total Rate-Sensitive Liabilities $241,620 $102,787 $ 58,432 $ 40,300 $ 33,796 $104,056 $580,991 $586,897
Average interest rate 4.13% 4.17% 3.69% 3.57% 3.53% 2.46% 3.72%
(Continued)
15
MATURITY ANALYSIS
================================================================================
Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued)
Based on the rate sensitivity analysis, the Company is liability sensitive,
which would benefit the Company in a declining rate environment. Based on low
interest rates, management has taken steps to guard against rising interest
rates. Management has been offering fixed rate mortgage loans to be sold on the
secondary market. Historically, the Company originated all mortgage loans to be
held in its own portfolio. Furthermore, management has extended the average
maturity of its funding sources by offering longer term certificates of deposit
and borrowing wholesale funds for longer time periods. The result of the above
strategies that were implemented starting last year is less exposure to interest
rate risk.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing date of this report, an evaluation
was carried out under the supervision and with the participation of Ohio Valley
Banc Corp.'s management, including our Chief Executive Officer and Treasurer, of
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934). Based on their evaluation, our Chief Executive Officer and Treasurer have
concluded that the Company's disclosure controls and procedures are, to the best
of their knowledge, effective to ensure that information required to be
disclosed by Ohio Valley Banc Corp. in reports that it files or submits under
the Exchange Acts is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
Subsequent to the date of their evaluation, our Chief Executive Officer and
Treasurer have concluded that there were no significant changes in Ohio Valley
Banc Corp.'s internal controls or in other factors that could significantly
affect its internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
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. The Company filed a report on Form 8-K dated July 11, 2002 related to the
issuance of a news release announcing its earnings for the second quarter and
year-to-date periods ending June 30, 2002.
OHIO VALLEY BANC CORP
---------------------
Date November 14, 2002 /s/ Jeffrey E. Smith
----------------- ---------------------
Jeffrey E. Smith
President and Chief Executive Officer
Date November 14, 2002 /s/ Larry E. Miller, II
----------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
================================================================================
16
Certifications of Principal Executive Officer and Principal Financial Officer
CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q
I, Jeffrey E. Smith, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Ohio Valley Banc
Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ Jeffrey E. Smith Date: November 14, 2002
-------------------- -----------------
Jeffrey E. Smith
President and CEO
Page 17
Certifications of Principal Executive Officer and Principal Financial Officer
CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q
I, Larry E. Miller, II, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Ohio Valley Banc
Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ Larry E. Miller, II Date: November 14, 2002
----------------------- -----------------
Larry E. Miller, II
Senior VP and Treasurer
Page 18
EXHIBIT INDEX
-------------
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED
STATES CODE, SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ohio Valley Banc Corp. (the
"Company") on Form 10-Q for the quarterly period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Jeffrey E. Smith, President and Chief Executive Officer of the
Company, certify, pursuant to Title 18, United States Code Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1924; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date November 14, 2002 /s/ Jeffrey E. Smith
------------------- -----------------------
Jeffrey E. Smith
President and Chief Executive Officer
In connection with the Quarterly Report of Ohio Valley Banc Corp. (the
"Company") on Form 10-Q for the quarterly period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Larry E. Miller, II, Senior Vice President and Treasurer of the
Company, certify, pursuant to Title 18, United States Code Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1924; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date November 14, 2002 /s/ Larry E. Miller, II
------------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
Page 19