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:
MARCH 31, 2003
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
X Yes
No
The number of common shares of the Registrant outstanding as of April 30, 2003
was 3,473,767
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
================================================================================
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
Item 4 - Controls and Procedures................................ 15
Part II - Other Information
Other Information and Signatures................................ 15
Certifications.................................................. 16
Exhibit Index - 99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.......................... 18
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
March 31, December 31,
2003 2002
------------ ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 15,588 $ 18,826
Federal funds sold 13,325 4,625
------------ ------------
Total cash and cash equivalent 28,913 23,451
Interest-bearing balances with banks 1,487 1,505
Securities available-for-sale 68,552 75,264
Securities held-to-maturity (estimated fair
value: 2003 - $14,727 , 2002 - $14,834) 13,938 13,990
Total loans 558,139 559,561
Less: Allowance for loan losses (7,070) (7,069)
------------ ------------
Net loans 551,069 552,492
Premises and equipment, net 8,270 8,247
Accrued income receivable 3,291 3,144
Goodwill 1,267 1,267
Bank owned life insurance 12,819 12,673
Other assets 5,227 4,323
------------ ------------
Total assets $ 694,833 $ 696,356
============ ============
LIABILITIES
Noninterest-bearing deposits $ 58,133 $ 58,997
Interest-bearing deposits 453,810 438,407
------------ ------------
Total deposits 511,943 497,404
Securities sold under agreements to repurchase 21,238 33,052
Other borrowed funds 89,769 95,435
Obligated mandatorily redeemable capital securities
of subsidiary trust 13,500 13,500
Accrued liabilities 7,059 6,590
----------- ------------
Total liabilities 643,509 645,981
----------- ------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2003 - 3,630,882 shares
issued, 2002 - 3,620,335 shares issued) 3,631 3,620
Additional paid-in capital 30,315 30,092
Retained earnings 20,210 19,339
Accumulated other comprehensive income 1,283 1,439
Treasury stock at cost (2003 and
2002 - 157,115 shares) (4,115) (4,115)
----------- ------------
Total shareholders' equity 51,324 50,375
----------- ------------
Total liabilities and
shareholders' equity $ 694,833 $ 696,356
=========== ============
================================================================================
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
March 31,
2003 2002
------------- -------------
Interest and dividend income:
Loans, including fees $ 10,687 $ 10,647
Securities:
Taxable 686 657
Tax exempt 174 176
Dividends 49 53
Other Interest 16 76
------------- -------------
11,612 11,609
Interest expense:
Deposits 3,316 3,900
Securities sold under agreements
to repurchase 53 84
Other borrowed funds 1,088 1,113
Obligated mandatorily redeemable capital
securities of subsidiary trust 239 139
------------- -------------
4,696 5,236
------------- -------------
Net interest income 6,916 6,373
Provision for loan losses 1,385 1,142
------------- -------------
Net interest income after provision
for loan losses 5,531 5,231
Noninterest income:
Service charges on deposit accounts 697 694
Trust fees 52 54
Income from bank owned insurance 172 171
Net gain on sale of loans 196 8
Other 329 353
------------- -------------
1,446 1,280
Noninterest expense:
Salaries and employee benefits 2,797 2,619
Occupancy 332 311
Furniture and equipment 237 263
Data processing 160 147
Other 1,398 1,433
------------- -------------
4,924 4,773
------------- -------------
Income before income taxes 2,053 1,738
Provision for income taxes 593 486
------------- -------------
NET INCOME $ 1,460 $ 1,252
============= =============
Earnings per share (basic and diluted) $ 0.42 $ 0.36
============= =============
================================================================================
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 share and per share data)
================================================================================
Three months ended
March 31,
2003 2002
------------ ------------
Balance at beginning of period $ 50,375 $ 46,300
Comprehensive income:
Net income 1,460 1,252
Net change in unrealized gain on available-
for-sale securities (156) (314)
------------ ------------
Total comprehensive income 1,304 938
Proceeds from issuance of common
stock through dividend reinvestment
plan 234 331
Cash dividends (589) (554)
------------ ------------
Balance at end of period $ 51,324 $ 47,015
============ ============
Cash dividends per share $ 0.17 $ 0.16
============ ============
Shares from common stock issued
through dividend reinvestment plan 10,547 13,706
============ ============
================================================================================
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)
================================================================================
Three months ended March 31,
2003 2002
------------ ------------
Net cash provided by operating activities $ 2,450 $ 2,486
Investing activities
Proceeds from maturities of
securities available-for-sale 14,753 10,272
Purchases of securities available-
for-sale (8,261) (3,211)
Proceeds from maturities of
securities held-to-maturity 38 261
Purchases of securities held-to-maturity (602)
Change in interest-bearing deposits
in other banks 18 (527)
Net change in loans 38 (10,032)
Purchases of premises and equipment (278) (34)
------------ ------------
Net cash from (used) in investing
activities 6,308 (3,873)
Financing activities
Change in deposits 14,539 24,134
Cash dividends (589) (554)
Proceeds from issuance of common stock 234 331
Change in securities sold under
agreements to repurchase (11,814) (12,864)
Proceeds from obligated mandatorily
redeemable capital securities of
subsidiary trust 8,244
Proceeds from long-term borrowings 3,390 40
Repayment of long-term borrowings (6,141) (1,808)
Change in other short-term borrowings (2,915) (1,950)
------------ ------------
Net cash from financing activities (3,296) 15,573
------------ ------------
Change in cash and cash equivalents 5,462 14,186
Cash and cash equivalents at beginning of period 23,451 26,288
------------ ------------
Cash and cash equivalents at end of period $ 28,913 $ 40,474
============ ============
SUPPLEMENTAL DISCLOSURE
- -----------------------
Cash paid for interest $ 5,639 $ 6,245
Cash paid for income taxes 170 325
Non-cash tranfers from loans to other real
estate owned 368 21
================================================================================
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., Ohio Valley Financial Services Agency, LLC. and
Ohio Valley Statutory Trusts I and II, 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 March 31, 2003, 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, 2002,
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. 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 disclosure 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.
Income tax expense is the sum of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to realized.
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 3,469,079 and
3,459,235 for the three months ending March 31, 2003 and March 31, 2002,
respectively.
The majority of the Company's income is derived from commercial and retail
lending activities. Management considers the Company to operate in one segment,
banking.
================================================================================
(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)
Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income on loans is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income on loans is not reported when full loan repayment is in doubt, typically
when the loan is impaired or payments are past due over 90 days. Payments
received on such loans are reported as principal reductions.
Because some loans may not be repaid in full, an allowance for loan losses is
recorded. Increases to the allowance are recorded by a provision for loan losses
charged to expense. Estimating the risk of loss and the amount of loss on any
loan is necessarily subjective. Accordingly, the allowance is maintained by
management at a level considered adequate to cover losses that are probable
based on past loss experience, general economic conditions, information about
specific borrower situations, including their financial position and collateral
value, and other factors and estimates which are subject to change over time.
While management may periodically allocate portions of the allowance for
specific problem situations, the entire allowance is available for any
charge-offs that occur. A loan is charged off by management as a loss when
deemed uncollectable, although collection efforts continue and future recoveries
may occur. Loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one-to-four family residences,
residential construction loans, credit card and automobile, home equity and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally moved to
nonaccrual status when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectable. This typically occurs when the loan is 120 or more days
past due.
================================================================================
(Continued)
6
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
Unrealized Unrealized Fair
Gains Losses Values
Securities Available-for-Sale ----------- ------------ ---------
March 31, 2003
- --------------
U.S. Government agency
securities $ 1,873 $ 52,091
Mortgage-backed securities 82 $ (10) 11,411
Marketable equity securities 5,050
----------- ------------ ---------
Total securities $ 1,955 $ (10) $ 68,552
=========== ============ =========
December 31, 2002
- -----------------
U.S. Government agency
securities $ 2,099 $ 66,838
Mortgage-backed securities 81 $ (6) 3,425
Marketable equity securities 5,001
----------- ------------ ---------
Total securities $ 2,180 $ (6) $ 75,264
=========== ============ =========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
Securities Held-to-Maturity --------- ----------- ------------ ---------
March 31, 2003
- --------------
Obligations of state and
political subdivisions $ 13,787 $ 828 $ (34) $ 14,581
Mortgage-backed securities 151 (5) 146
--------- ----------- ------------ ---------
Total securities $ 13,938 $ 828 $ (39) $ 14,727
========== =========== ============ =========
December 31, 2002
- -----------------
Obligations of state and
political subdivisions $ 13,821 $ 881 $ (31) $ 14,671
Mortgage-backed securities 169 (6) 163
--------- ----------- ------------ ---------
Total securities $ 13,990 $ 881 $ (37) $ 14,834
========== =========== ============ =========
The amortized cost and estimated fair value of debt securities at March 31,
2003, 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
Fair Amortized Fair
Value Cost Value
----------- ----------- -----------
Debt securities:
Due in one year
or less $ 8,944 $ 1,814 $ 1,855
Due in one to
five years 43,147 3,731 3,982
Due in five to
ten years 5,885 6,349
Due after ten years 2,357 2,395
Mortgage-backed sec. 11,411 151 146
----------- ----------- -----------
Total debt
securities $ 63,502 $ 13,938 $ 14,727
=========== =========== ===========
Gains and losses on the sale of securities are determined using the specific
identification method. There were no sales of debt and equity securities during
the first three months of 2003 and 2002.
================================================================================
(Continued)
7
NOTE 3 - LOANS & ALLOWANCE FOR LOAN LOSSES
Total loans as presented on the balance sheet are comprised of the following
classifications:
March 31, December 31,
2003 2002
---------------- ----------------
Real estate loans $ 214,350 $ 224,212
Commercial and industrial loans 214,319 205,508
Consumer loans 128,384 128,662
Other loans 1,086 1,179
---------------- ----------------
$ 558,139 $ 559,561
================ ================
At March 31, 2003 and December 31, 2002, loans on nonaccrual status were
approximately $5,985 and $6,569, respectively. Loans past due more than 90 days
and still accruing at March 31, 2003 and December 31, 2002 were $3,521 and
$1,491, respectively.
A summary of activity in the allowance for loan losses for the three months
ended March 31 is as follows:
2003 2002
---------------- ----------------
Balance - January 1, $ 7,069 $ 6,251
Loans charged off:
Real estate 92 211
Commercial 1,212 431
Consumer 556 753
---------------- ----------------
Total loans charged off 1,860 1,395
Recoveries of loans:
Real estate 7 101
Commercial 276 132
Consumer 193 146
---------------- ----------------
Total recoveries 476 379
---------------- ----------------
Net loan charge-offs (1,384) (1,016)
Provision charged to operations 1,385 1,142
---------------- ----------------
Balance - March 31, $ 7,070 $ 6,377
================ ================
Information regarding impaired loans is as follows:
March 31, December 31,
2003 2002
-------------- ---------------
Balance of impaired loans $ 7,027 $ 4,780
============== ===============
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $ 7,027 $ 4,780
============== ===============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 920 $ 500
============== ===============
Average investment in impaired loans
year-to-date $ 7,586 $ 5,308
============== ===============
Interest on impaired loans was not material for the periods ended March 31,
2003 and March 31, 2002.
================================================================================
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 4 - 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
4.25% of total loans were unsecured at March 31, 2003 as compared to 4.16% at
December 31, 2002.
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 March
31, 2003, 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 $48,090 as compared to $55,150 at December 31,
2002.
NOTE 5 - OTHER BORROWED FUNDS
Other borrowed funds at March 31, 2003 and December 31, 2002 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
--------------- ---------------- --------- ----------
2003 $ 81,839 $ 6,595 $ 1,335 $ 89,769
2002 $ 84,590 $ 5,345 $ 5,500 $ 95,435
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $122,759
and $5,050 at March 31, 2003. Fixed rate FHLB advances mature through 2010 and
have interest rates ranging from 3.28% to 6.62%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 2.00% to 5.25% and are due at various dates through a final maturity date of
September 30, 2005.
At March 31, 2003, scheduled principal payments through December 31 over the
next five years are to be:
FHLB borrowings Promissory notes FRB Notes Totals
--------------- ---------------- --------- ----------
2003 $ 9,409 $ 4,589 $ 1,335 $ 15,333
2004 17,488 1,906 19,394
2005 17,115 100 17,215
2006 17,607 17,607
2007 4,060 4,060
Thereafter 16,160 16,160
---------------- ---------------- ---------- ----------
$ 81,839 $ 6,595 $ 1,335 $ 89,769
================ ================ ========== ==========
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $27,450 at March 31,
2003 and $30,425 at December 31, 2002. Various investment securities from the
Bank used to collateralize FRB notes totaled $6,010 at March 31, 2003 and
December 31, 2002.
================================================================================
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 March 31, 2003, compared to December 31, 2002, and the
consolidated results of operations for the quarterly period ending March 31,
2003, compared to the same period in 2002. 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. decreased $1,523 or .2%
during the first three months of 2003 to finish at $694,833. The decrease in
assets was primarily due to a decrease in investment securities of $6,764 and a
decline in loans of $1,422. This decline in loans and investment securities
assets produced an increase in the Company's cash and cash equivalents,
primarily in federal funds sold which are up $8,700 from year-end 2002. The
Company's total deposits increased $14,359 which were offset by a decrease in
securities sold under agreements to repurchase ("repurchase agreements") of
$11,184 and other borrowed funds of $5,666.
During the first three months of 2003, loan decreases were impacted by real
estate mortgages which declined by $9,862 or 4.4%. The Bank's emphasis on
selling a large portion of its new real estate loan originations to the Federal
Home Loan Loan Mortgage Corporation ("Freddie Mac") was the primary contributor
to the decline in new real estate loan volume. Secondary market sales of these
real estate loan originations, which have fixed rates with fifteen and thirty
year terms, have helped minimize the Bank's exposure to interest rate risk. As a
result, the Bank realized an 11% decline in its fifteen and thirty year fixed
rate real estate loans. Additionally, consumer loans declined by $278 or .2%.
Partially offsetting these decreases was an increase in the Company's commercial
loans of $8,811 or 4.3%. This growth came mostly from loan originations within
the primary market areas of Gallia, Jackson, Pike and Franklin counties in Ohio
which accounted for 68% of the total increase. In addition, approximately 21% of
commercial loan originations came from the growing West Virginia market areas.
During the first three months of 2003, investment securities declined $6,764 or
7.6% led by a decline in U.S. government agency securities of $14,747 or 22.1%
offset partially by an increase in mortgage-backed securities of $7,968. The
Company's demand for U.S. government agency securities has primarily been to
satisfy pledging requirements for repurchase agreements. In the first quarter
2003, the Bank's repurchase agreements declined 36%, lowering the need to secure
these balances with agency security investments. The increase in mortgage-backed
securities is anticipated to enhance the Company's investment portfolio with a
higher rate of return and a quicker repayment of principal as compared to U.S.
government agency securities.
10
During the first three months of 2003, the Company experienced a $368 increase
in net charge offs consisting primarily of commercial nonperforming loans.
Nonperforming loans increased to $9,506 at March 31, 2003 compared to $8,060 at
December 31, 2002 and $5,507 at March 31, 2002. This increase in nonperforming
loans consisted primarily of two commercial lines which total 2/3 of the
nonperforming balance. The first line, which represents .37 percent of total
loans outstanding, was disclosed in the third quarter of 2002. The second line
represents .24 percent of total loans outstanding at March 31, 2003. These
commercial lines, representing .61% of total loans, increased the Company's
nonperforming loans as a percentage of total loans to 1.70% for the first
quarter of 2003 compared to 1.44% at December 31, 2002 and 1.06% at March 31,
2002. The allowance for loan losses was 1.27% of total loans at March 31, 2003
and is compared to 1.26% at December 31, 2002 and 1.23% at March 31, 2002.
Management has increased the ratio of allowance to total loans based on an
increase in nonperforming loans and the continued uncertainty of economic
conditions. Management feels that the allowance for loan losses is adequate to
absorb probable losses in the loan portfolio.
Total deposit growth during the first three months of 2003 was primarily in
savings and interest-bearing demand deposits which increased $11,641 or 7.8%.
While the Company's Gold Club account continues to impact this area of deposit
growth, the largest portion of this increase was related to the collection of
real estate taxes by local municipalities who maintain various deposit accounts
(NOW accounts) within the Bank. These deposits from tax collections are
short-term in nature and also had an impact on the increase in federal funds
which represent overnight investments. Furthermore, time deposits increased
$3,762 or 1.3%. This growth was partially driven by increases in the Company's
brokered CD issues which totaled $2,019 during the first three months of 2003.
Management continues to utilize these deposit sources to supplement deposit
growth when necessary to lengthen maturities while protecting against rising
interest rates. In addition, non-interest bearing demand deposits have declined
$864 or 1.5% during the same period.
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 down $5,666 from December 31, 2002. The need to fund interest-earning
asset growth, particularly loans, has declined in the first quarter of 2003
contributing to this 5.9% decrease in other borrowings. Additionally, repurchase
agreements are down $11,814 or 35.7% from December 31, 2002. This decline was
mostly related to the normal fluctuations of a single account in the first
quarter of 2003.
Total shareholders' equity at March 31, 2003 of $51,324 was up by $949 as
compared to the balance of $50,375 on December 31, 2002. Contributing most to
this increase was year-to-date income of $1,460 plus proceeds of $234 from the
issuance of common stock through the dividend reinvestment plan less cash
dividends paid of $589, or $.17 per share year-to-date. While cash dividends
represented 40.3% of year-to-date income, dividends net of proceeds from the
dividend reinvestment plan represented 24.3% of year-to-date income.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,460 for the first quarter of 2003, up
$208 or 16.6% compared to $1,252 for the first quarter of 2002. Comparing March
31, 2003 to March 31, 2002, the annualized quarter-to-date return on assets
increased from .80% to .86% and return on equity increased from 10.86% to
11.67%. First quarter earnings per share was $.42 per share, up 16.7% over last
year's $.36 per share. The primary contributors to the first quarter gain in net
income was net interest income growth of $543 or 8.5% partially offset by a $243
or 21.3% increase in provision expense.
11
The 8.5% first quarter increase to net interest income was primarily due to the
decline in total interest expense of $540 or 10.3% versus relatively no change
in total interest income due to strong growth in average earning assets, driven
by loans, which were up $52,745 from the first quarter of 2002. The decline in
interest expense was largely impacted by a 66 basis point decrease in the Bank's
average funding costs due to the low interest rate environment which helped to
minimize the drop in net interest margin to only two basis points. The Company's
net interest margin lowered to 4.36% in the first quarter of 2003 from 4.38% in
the first quarter of 2002. For additional discussion on the Company's rate
sensitive assets and liabilities, please see Item 3, Quantitative and
Qualitative Disclosure About Market Risk on page 14.
The increase in net interest income for the first quarter of 2003 was partially
offset by an increase to provision expense of $243 as compared to the same
period in 2002. The increase to provision expense was in large part from the 36%
increase in nonperforming loans recognized in the first quarter of 2003 compared
to the same period in 2002. The increase in net interest income after provision
for the first quarter of 2003 was enhanced by a decrease in net noninterest
expense of $15 or .4% for the same period as compared to 2002. Total noninterest
income increased $166 or 13.0% for the first quarter of 2003 as compared to the
same period in 2002. Driving this gain in the first quarter was the Bank's
secondary market sales of new real estate loan originations which generated an
additional $188 in noninterest revenue. The additional growth in noninterest
revenue related to overdraft fees, service charge income and loan service fees
was completely offset by a decrease in loan insurance commission revenue due to
state mandated reductions in insurance premiums and less opportunities to sell
insurance relative to the decrease in the real estate and consumer loan
portfolios. Total noninterest expense increased $151 or 3.2% for the first
quarter of 2003 as compared to the same period in 2002. Contributing most to
this first quarter increase was salaries and employee benefits, the Company's
largest noninterest expense, which increased $178 or 6.8%. This increase was
related to the rising cost of medical insurance and annual merit increases. The
remaining noninterest expense categories were collectively down from 2002.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
March 31, 2003 December 31, 2002 Minimum
-------------- ----------------- -----------
Tier 1 risk-based capital 11.3% 11.0% 4.00%
Total risk-based capital ratio 12.5% 12.2% 8.00%
Leverage ratio 9.0% 9.2% 4.00%
Cash dividends paid of $589 for the first three months of 2003 represents a 6.3%
increase over the cash dividends paid during the same period in 2002. The
increase in cash dividends paid is largely due to the increase in retained
earnings which allowed the Company to increase the dividend rate paid per share.
12
At March 31, 2003, approximately 76% of the shareholders were enrolled in the
dividend reinvestment plan. As part of the Company's stock repurchase program,
management will continue to utilize reinvested dividends and voluntary cash, if
necessary, 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 $100,766 represented 14.5%
of total assets at March 31, 2003. 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 March 31, 2003, the Bank could borrow an
additional $45 million from the Federal Home Loan Bank. The Company experienced
an increase of $5,462 in cash and cash equivalents for the three months ended
March 31, 2003. 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
(dollars in thousands, except per share data)
================================================================================
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The Company's goal for interest rate sensitivity management is to maintain a
balance between steady net interest income growth and the risks associated with
interest rate fluctuations. Interest rate risk ("IRR") is the exposure of the
Company's financial condition to adverse movements in interest rates. Accepting
this risk can be an important source of profitability, but excessive levels of
IRR can threaten the Company's earnings and capital.
The Company evaluates IRR through the use of an earnings simulation model to
analyze net interest income sensitivity to changing interest rates. The modeling
process starts with a base case simulation, which assumes a flat interest rate
scenario. The base case scenario is compared to rising and falling interest rate
scenarios assuming a parallel shift in all interest rates. Comparisons of net
interest income fluctuations from the flat rate scenario illustrate the risks
associated with the projected balance sheet structure.
The Company's ALCO monitors and manages IRR within Board approved policy limits.
The current IRR policy limits anticipated changes in net interest income over a
12 month horizon to plus or minus 10% of the base net interest income assuming a
parallel rate shock of up 100, 200 and 300 basis points and down 100 basis
points. Based on the current interest rate environment, management did not test
interest rates down 200 and 300 basis points.
The following table presents the Company's estimated net interest income
sensitivity:
March 31, 2003 December 31, 2002
Change in Interest Rates Percentage Change in Percentage Change in
in Basis Points Net Interest Income Net Interest Income
- ------------------------ -------------------- --------------------
+300 .80% (1.75%)
+200 (.03%) (1.52%)
+100 (.35%) (.92%)
-100 1.97% 2.56%
The Company is well within the policy guidelines established by the Board. The
Company's balance sheet is considered liability sensitive but since a portion of
our variable rate commercial loans are at their interest rate floor, net
interest income actually improves in a declining rate environment. Due to
historically low interest rates, management has been moving closer to being
asset sensitive by implementing various strategies. Management has been
targeting variable rate commercial loans while selling long-term, fixed-rate
residential mortgages upon origination. Furthermore, management has secured
longer-term funding by pricing the Company's certificates of deposits to attract
longer maturities and by extending the maturity structure of wholesale funds
such as Federal Home Loan Bank advances. As compared to December 31, 2002, the
Company has reduced its exposure to net interest income fluctuations due to
interest rate changes.
14
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 and Use of Proceeds
- --------------------------------------------------
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 January 15, 2003 related to the
issuance of a news release announcing its earnings for the fourth quarter and
year-to-date periods ending December 31, 2002.
The Company filed a report on Form 8-K dated January 22, 2003 related to
the approval of a resolution that authorizes the repurchase of up to 175,000
shares or approximately 5% of the Company's outstanding common shares from time
to time in open market or privately negotiated purchases. This stock repurchase
program will continue through February 15, 2004.
OHIO VALLEY BANC CORP.
-------------------------------------------
Date May 15, 2003 /s/ Jeffrey E. Smith
------------------- -------------------------------------------
Jeffrey E. Smith
President and Chief Executive Officer
Date May 15, 2003 /s/ Larry E. Miller, II
------------------- -------------------------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
================================================================================
15
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: May 15, 2003
-------------------- ------------
Jeffrey E. Smith
President and CEO
Page 16
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: May 15, 2003
----------------------- ------------
Larry E. Miller, II
Senior VP and Treasurer
Page 17
EXHIBIT 99.1
CERTIFICATION 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
"Corporation") on Form 10-Q for the quarterly period ended March 31, 2003, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned Jeffrey E. Smith, President and Chief Executive
Officer of the Corporation, and Larry E. Miller, II, Senior Vice President and
Treasurer (Chief Financial Officer) of the Corporation, each certify, pursuant
to Title 18, United States Code, Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Corporation.
* /s/ Jeffrey E. Smith * /s/ Larry E. Miller, II
- ---------------------- -------------------------
Jeffrey E. Smith, Larry E. Miller, II
President and Chief Executive Officer Senior Vice President and
Treasurer (Chief Financial
Officer)
Dated: May 15, 2003 Dated: May 15, 2003
* A signed original of this written statement required by Section 906 has been
provided to Ohio Valley Banc Corp. and will be retained by Ohio Valley Banc
Corp. and furnished to the Securities and Exchange Commission or its staff
upon request.
18