REMEMBER THE GOOD OLD DAYS?
OVB WAS THERE!
MESSAGE FROM MANAGEMENT
by CEO/President Jeff Smith & Chairman Jim Dailey
Dear Shareholders,
On that cool November 1st morning back in 1872, do you think the 31 founding
shareholders thought about the tradition they were about to start as the doors
to Ohio Valley Bank were opened for the very first time?
Could they have dreamed of the day OVB would be named one of Ohio's 100 top
companies? Their company has received that honor several times including 2003.
Could they have even entertained the notion that their company would have 22
offices in 10 counties and 2 states? This probably wouldn't have been more than
a dream to them, but now it's reality.
Those first members of the Ohio Valley Bank family would be proud of the 250
employees whom were responsible for more than $6.4 million in net income and
increased their earnings per share more than 13%. They would also be proud of
their successors that now number more than 2,000; whom, for the second year in
a row, reinvested over $1 million through the Dividend Reinvestment and Stock
Purchase Plan. Their successors also saw their cash dividends for 2003 increase
by 6% and the price of their NASDAQ listed stock close at $26.50.
While OVB was there for the "good old days", we're still working hard to insure
that there are more to come.
Come share some memories with us at this year's Annual Meeting. We hope to see
you there.
Sincerely,
Jeffrey E. Smith
President and CEO
James L. Dailey
Chairman of the Board
SELECTED FINANCIAL DATA
Years Ended December 31
SUMMARY OF OPERATIONS: 2003 2002 2001 2000 1999
(dollars in thousands, except per share data)
Total interest income $ 45,160 $ 47,771 $ 47,585 $ 45,195 $ 40,006
Total interest expense 17,645 20,810 24,235 24,065 18,837
Net interest income 27,515 26,961 23,350 21,130 21,169
Provision for loan losses 4,339 5,470 3,503 1,890 2,303
Total other income 5,982 5,634 5,129 3,858 3,132
Total other expenses 19,817 19,175 18,171 16,978 16,060
Income before income taxes 9,341 7,950 6,805 6,120 5,938
Income taxes 2,869 2,275 1,910 1,720 1,646
Net income 6,472 5,675 4,895 4,400 4,292
PER SHARE DATA (1):
Net income per share $ 1.86 $ 1.64 $ 1.41 $ 1.25 $ 1.22
Cash dividends per share $ .71 $ .67 $ .79 $ .59 $ .53
Book value per share $15.55 $14.55 $13.42 $12.76 $12.10
Weighted average number of common
shares outstanding 3,480,230 3,458,300 3,461,856 3,516,205 3,530,203
AVERAGE BALANCE SUMMARY:
Total loans $ 559,854 $ 538,148 $ 473,998 $ 432,165 $ 382,353
Securities (2) 86,609 76,020 70,857 74,733 73,783
Deposits 509,676 489,513 441,255 428,874 376,050
Other borrowed funds (3) 100,590 98,938 74,525 47,311 50,539
Shareholders' equity 52,074 47,875 45,329 42,773 41,730
Total assets 693,197 667,561 590,193 544,306 488,632
PERIOD END BALANCES:
Total loans $ 573,704 $ 559,561 $ 508,660 $ 448,303 $ 411,158
Securities (2) 90,046 90,759 76,796 76,402 72,186
Deposits 507,509 497,404 455,861 432,371 405,331
Shareholders' equity 54,408 50,375 46,300 44,492 42,708
Total assets 707,327 696,356 634,999 561,658 522,057
KEY RATIOS:
Return on average assets .93% .85% .83% .81% .88%
Return on average equity 12.43% 11.85% 10.80% 10.29% 10.29%
Dividend payout ratio 38.14% 40.79% 55.84% 47.14% 43.73%
Average equity to average assets 7.51% 7.17% 7.68% 7.86% 8.54%
(1) Restated for stock splits as appropriate.
(2) Securities include interest-bearing balances with banks.
(3) Other borrowed funds include trust preferred obligations
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Ohio Valley Banc Corp.
Gallipolis, Ohio
We have audited the accompanying consolidated statements of condition of Ohio
Valley Banc Corp., as of December 31, 2003 and 2002 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ohio Valley Banc
Corp. as of December 31, 2003 and 2002 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
/s/CROWE CHIZEK AND COMPANY LLC
Crowe Chizek and Company LLC
Columbus, Ohio
February 5, 2004
5
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31
2003 2002
---- ----
(dollars in thousands, except share and per share data)
ASSETS
Cash and noninterest-bearing deposits with banks $ 17,753 $ 18,826
Federal funds sold 4,625
Total cash and cash equivalents --------- ---------
17,753 23,451
Interest-bearing balances in other banks 859 1,505
Securities available-for-sale 76,352 75,264
Securities held-to-maturity
(estimated fair value: 2003 - $13,547,
2002 - $14,834) 12,835 13,990
Total loans 573,704 559,561
Less: Allowance for loan losses (7,593) (7,069)
--------- ---------
Net loans 566,111 552,492
Premises and equipment, net 9,142 8,247
Accrued income receivable 2,700 3,144
Goodwill 1,267 1,267
Bank owned life insurance 13,222 12,673
Other assets 7,086 4,323
--------- ---------
Total assets $ 707,327 $ 696,356
========= =========
LIABILITIES
Noninterest-bearing deposits $ 62,235 $ 58,997
Interest-bearing deposits 445,274 438,407
--------- ---------
Total deposits 507,509 497,404
Securities sold under agreements to repurchase 24,018 33,052
Other borrowed funds 101,562 95,435
Subordinated debentures 13,500
Obligated mandatorily redeemable capital securities
of subsidiary trust 13,500
Accrued liabilities 6,330 6,590
--------- ---------
Total liabilities 652,919 645,981
--------- ---------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2003 - 3,658,212 shares
issued, 2002 - 3,620,335 shares issued) 3,658 3,620
Additional paid-in-capital 30,962 30,092
Retained earnings 23,343 19,339
Accumulated other comprehensive income 624 1,439
Treasury stock, at cost (2003 - 159,611 shares,
2002 - 157,115 shares) (4,179) (4,115)
--------- ---------
Total shareholders' equity 54,408 50,375
--------- ---------
Total liabilities and shareholders' equity $ 707,327 $ 696,356
========= =========
See accompanying notes to consolidated financial statements
6
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 2003 2002 2001
------------------------------- ---- ---- ----
(dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees $ 41,462 $ 43,947 $ 43,321
Securities:
Taxable 2,739 2,612 2,879
Tax exempt 685 735 758
Dividends 203 225 309
Other Interest 71 252 318
-------- -------- --------
45,160 47,771 47,585
Interest expense:
Deposits 12,322 15,129 19,281
Securities sold under agreements
to repurchase 204 361 627
Other borrowed funds 4,175 4,427 3,797
Subordinated debentures 944
Obligated mandatorily redeemable capital
securities of subsidiary trust 893 530
-------- -------- --------
17,645 20,810 24,235
-------- -------- --------
Net interest income 27,515 26,961 23,350
Provision for loan losses 4,339 5,470 3,503
Net interest income after provision -------- -------- --------
for loan losses 23,176 21,491 19,847
-------- -------- --------
Noninterest income:
Service charges on deposit accounts 3,160 3,118 3,003
Trust fees 215 215 222
Income from bank owned insurance 657 684 596
Net gain on sale of loans 444 76
Other 1,506 1,541 1,308
-------- -------- --------
5,982 5,634 5,129
Noninterest expense:
Salaries and employee benefits 11,571 10,641 9,815
Occupancy 1,308 1,274 1,255
Furniture and equipment 1,031 1,083 1,141
Corporation franchise tax 591 395 587
Data processing 554 484 496
Other 4,762 5,298 4,877
-------- -------- --------
19,817 19,175 18,171
-------- -------- --------
Income before income taxes 9,341 7,950 6,805
Provision for income taxes 2,869 2,275 1,910
-------- -------- --------
NET INCOME $ 6,472 $ 5,675 $ 4,895
======== ======== ========
Earnings per share $ 1.86 $ 1.64 $ 1.41
======== ======== ========
See accompanying notes to consolidated financial statements
7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2003, 2002 and 2001
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Treasury Shareholders'
(dollars in thousands, except share and Stock Capital Earnings Income(Loss) Stock Equity
per share data) ------- ------- ------- ----------- -------- -------
BALANCES AT JANUARY 1, 2001 $ 3,560 $28,760 $13,817 $ 436 $ (2,081) $44,492
Comprehensive income:
Net income 4,895 4,895
Net change in unrealized gain
on available-for-sale securities 607 607
-------
Total comprehensive income 5,502
Common Stock issued through
dividend reinvestment, 19,480 shares 19 447 466
Cash dividends, $.79 per share (2,733) (2,733)
Shares acquired for treasury, 57,501 shares (1,427) (1,427)
------- ------- ------- ------- -------- -------
BALANCES AT DECEMBER 31, 2001 3,579 29,207 15,979 1,043 (3,508) 46,300
Comprehensive income:
Net income 5,675 5,675
Net change in unrealized gain
on available-for-sale securities 396 396
-------
Total comprehensive income 6,071
Common Stock issued to ESOP, 12,800 shares 13 272 285
Common Stock issued through
dividend reinvestment, 28,285 shares 28 613 641
Cash dividends, $.67 per share (2,315) (2,315)
Shares acquired for treasury, 27,125 shares (607) (607)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 2002 3,620 30,092 19,339 1,439 (4,115) 50,375
Comprehensive income:
Net income 6,472 6,472
Net change in unrealized gain
on available-for-sale securities (815) (815)
-------
Total comprehensive income 5,657
Common Stock issued to ESOP, 7,400 shares 7 191 198
Common Stock issued through
dividend reinvestment, 30,477 shares 31 679 710
Cash dividends, $.71 per share (2,468) (2,468)
Shares acquired for treasury, 2,496 shares (64) (64)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 2003 $ 3,658 $30,962 $23,343 $ 624 $(4,179) $54,408
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2003 2002 2001
------------------------------- ---- ---- ----
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,472 $ 5,675 $ 4,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,086 1,165 1,222
Net amortization and accretion of securities 243 123 63
Proceeds from sale of loans in secondary market 20,952 5,913
Loans disbursed for sale in secondary market (20,508) (5,837)
Gain on sale of loans (444) (76)
Amortization of intangible assets 130
Deferred tax benefit (364) (392) (368)
Provision for loan losses 4,339 5,470 3,503
Common stock issued to ESOP 198 285
FHLB stock dividend (203) (225) (309)
Change in accrued income receivable 444 276 684
Change in accrued liabilities (260) (1,118) (120)
Change in other assets 1,268 (691) (913)
------- ------- -------
Net cash provided by operating activities 13,223 10,568 8,787
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available-for-sale 41,953 30,491 25,726
Purchases of securities available-for-sale (44,271) (43,469) (26,248)
Proceeds from maturities of securities
held-to-maturity 2,965 2,005 2,482
Purchases of securities held-to-maturity (1,855) (2,046) (741)
Change in interest-bearing deposits in other banks 646 (241) (448)
Net increase in loans (19,602) (55,183) (62,806)
Proceeds from sale of other real estate owned (2,152) (370) (188)
Purchases of premises and equipment (1,981) (710) (639)
Purchases of insurance contracts (2,165)
------- ------- -------
Net cash used in investing activities (24,297) (69,523) (65,027)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits 10,105 41,543 23,490
Cash dividends (2,468) (2,315) (2,733)
Proceeds from issuance of common stock 710 641 466
Purchases of treasury stock (64) (607) (1,427)
Change in securities sold under agreements to repurchase (9,034) 3,778 10,929
Proceeds from trust preferred obligations 8,500
Proceeds from long-term borrowings 7,503 16,065 54,125
Repayment of long-term borrowings (15,439) (13,040) (13,615)
Change in other short-term borrowings 14,063 1,553 (3,276)
------- ------- -------
Net cash provided by financing activities 5,376 56,118 67,959
------- ------- -------
CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents (5,698) (2,837) 11,719
Cash and cash equivalents at beginning of year 23,451 26,288 14,569
------- ------- -------
Cash and cash equivalents at end of year $17,753 $23,451 $26,288
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $18,562 $21,659 $25,155
Income taxes 2,960 2,675 2,455
Non-cash transfers from loans to other real estate owned 3,796 521 443
See accompanying notes to consolidated financial statements
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts are in thousands, except share and per share data
Note A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Ohio Valley Banc Corp. (the Company) and its wholly-owned
subsidiaries, The Ohio Valley Bank Company (the Bank), Loan Central, a consumer
finance company and Ohio Valley Financial Services Agency, LLC, an insurance
company. As further discussed in Note I, trusts that had previously been
consolidated with the Company are now reported separately. All material
intercompany accounts and transactions have been eliminated.
Industry Segment Information: The Company provides financial services through 22
offices located in central and southeastern Ohio as well as western West
Virginia. Its primary deposit products are checking, savings, and term
certificate accounts, and its primary lending products are residential mortgage,
commercial, and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets, and
commercial and residential real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Other financial instruments
include deposit accounts in other financial institutions and federal funds sold.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Areas
involving the use of management's estimates and assumptions that are more
susceptible to change in the near term involve the allowance for loan losses,
the fair value of certain securities, the fair value of financial instruments
and the determination and carrying value of impaired loans.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
noninterest-bearing deposits with banks and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods. The Company reports
net cash flows for customer loan transactions, deposit transactions, short-term
borrowings and interest-bearing deposits with other financial institutions.
Securities: The Company classifies securities into held-to-maturity and
available-for-sale categories. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity and are reported
at amortized cost. Securities classified as available-for-sale include equity
securities and other securities that management intends to sell or that could be
sold for liquidity, investment management or similar reasons even if there is
not a present intention of such a sale. Available-for-sale securities are
reported at fair value, with unrealized gains or losses included as a separate
component of equity, net of tax. Other securities such as Federal Home Loan Bank
stock are carried at cost.
Premium amortization is deducted from, and discount accretion is added to,
interest income on securities using the level yield method. Gains and losses are
recognized upon the sale of specific identified securities on the completed
transaction basis. Securities are written down to fair value when a decline in
fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance. Management estimates the allowance balance required using past loan
loss experience, the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.
11
Note A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
A loan is impaired when full payment under the loan terms is not expected.
Commercial and commercial real estate loans are individually evaluated for
impairment. 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. Large groups of smaller balance
homogeneous loans, such as consumer and residential real estate loans, are
collectively evaluated for impairment, and accordingly, they are not separately
identified for impairment disclosures.
Concentrations of Credit Risk:
The Company, through its subsidiaries, grants residential, consumer and
commercial loans to customers located primarily in the southeastern Ohio and
western West Virginia areas.
The following represents the composition of the loan portfolio at December 31,
2003:
% of Total Loans
----------------
Real Estate loans 37.94%
Commercial and industrial loans 38.47%
Consumer loans 23.48%
All other loans .11%
----------------
100.00%
================
Approximately 3.99% of total loans are unsecured.
The Bank, in the normal course of its operations, conducts business with
correspondent financial institutions. Balances in correspondent accounts,
investments in federal funds, certificates of deposit and other short-term
securities are closely monitored to ensure that prudent levels of credit and
liquidity risks are maintained. At December 31, 2003, the Bank's primary
correspondent balance was $7,411 on deposit at the Federal Reserve Bank,
Cleveland, Ohio.
Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Buildings and related components
are depreciated using the straight-line or declining balance methods with useful
lives ranging from 7 to 39 years. Furniture, fixtures and equipment are
depreciated using the straight-line or declining balance methods with useful
lives ranging from 3 to 8 years.
Other Real Estate: Real estate acquired through foreclosure or deed-in-lieu of
foreclosure is included in other assets. Such real estate is carried at the
lower of investment in the loan or estimated fair value of the property less
estimated selling costs. Any reduction to fair value at the time of acquisition
is accounted for as a loan charge-off. Any subsequent reduction in fair value is
recorded as a loss on other assets. Costs incurred to carry other real estate
are charged to expense. Other real estate owned totaled $2,084 at December 31,
2003 and $440 at December 31, 2002.
Goodwill: Goodwill results from business acquisitions and represents the excess
of the purchase price over the fair value of acquired tangible assets and
liabilities and identifiable intangible assets. Upon adopting new accounting
guidance in 2002, the Company ceased amortizing goodwill. Goodwill is assessed
at least annually for impairment and any such impairment will be recognized in
the period identified.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
fair value.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Per Share Amounts: Earnings per share is based on net income divided by the
following weighted average number of shares outstanding during the periods:
3,480,230 for 2003, 3,458,300 for 2002 and 3,461,856 for 2001. The Company had
no dilutive securities outstanding for any period presented.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
12
Note A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available-for-sale which are also recognized as separate
components of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Bank Owned Life Insurance: The Company has purchased life insurance policies on
certain officers. These policies are recorded at their cash surrender value, or
the amount that could be currently realized.
ESOP: Compensation expense is based on the market price of shares as they are
committed to be allocated to participant accounts.
New Accounting Pronouncements: During 2003, the Company adopted Financial
Accounting Standards Board ("FASB") Statement 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, and FASB Statement 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities, FASB Interpretation 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, and FASB Interpretation 46,
Consolidation of Variable Interest Entities. Adoption of the new standards did
not materially affect the Company's operating results or financial condition.
Statement 149 indicates that commitments to make mortgage loans should be
accounted for as derivatives if the loans are to be held for sale, because the
commitment represents a written option and accordingly is recorded at the fair
value of the option liability.
Statement 150 requires reporting mandatorily redeemable shares as liabilities,
as well as obligations not in the form of shares to repurchase shares that may
require cash payment and some obligations that may be settled by issuing a
variable number of equity shares.
Interpretation 45 requires recognizing the fair value of guarantees made and
information about the maximum potential payments that might be required, as well
as the collateral or other recourse obtainable. Interpretation 45 covers
guarantees such as standby letters of credit, performance guarantees, and direct
or indirect guarantees of the indebtedness of others, but not guarantees of
funding.
Interpretation 46, as revised in December 2003, changes the accounting model
for consolidation from one based on consideration of control through voting
interests. Whether to consolidate an entity will now also consider whether that
entity has sufficient equity at risk to enable it to operate without additional
financial support, whether the equity owners in that entity lack the obligation
to absorb expected losses or the right to receive residual returns of the
entity, or whether voting rights in the entity are not proportional to the
equity interest and substantially all the entity's activities are conducted for
an investor with few voting rights.
The FASB also recently issued Statement of Financial Accounting Standards
("SFAS") No. 145 and SFAS No. 146. SFAS 145 covers debt extinguishments and
leases, and made some minor technical corrections. Gains and losses on
extinguishments of debt, always treated as an extraordinary item under a
previous standard, will no longer be considered extraordinary, except under very
limited conditions. If a capital lease is modified to an operating, it will be
treated as a sale-leaseback instead of a new lease. SFAS No. 146 covers
accounting for costs associated with exit or disposal activities, such as lease
termination costs or employee severance costs. The Statement replaces Emerging
Issues Task Force ("EITF") 94-3, and is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. It requires these costs
to be recognized when they are incurred rather than at date of commitment to an
exit or disposal plan. Adoption of the new standards did not materially affect
the Company's operating results or financial condition.
In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
legal obligations associated with sale, abandonment, disposal, recycling or
other than temporary removal from service of tangible long-lived assets. SFAS
No. 143 requires an asset obligation to be recognized at fair value when it is
incurred, if a reasonable estimate of its fair value can be made at the time.
Otherwise, the obligation should be recorded as soon as its fair value can be
reasonably estimated. This statement, which was effective for the Company on
January 1, 2003, did not have a material impact on the Company.
Reclassifications: The consolidated financial statements for 2002 and 2001 have
been reclassified to conform with the presentation for 2003. Such
reclassifications had no effect on the net results of operations.
13
NOTE B - SECURITIES
Securities are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
---- ----- ------ -----
December 31, 2003
-----------------
U.S. Government agency securities $36,789 $1,047 $ (51) $37,785
Mortgage-backed securities 33,415 140 (191) 33,364
Equity securities 5,203 5,203
------- ------ ----- -------
Total securities $75,407 $1,187 $(242) $76,352
======= ====== ===== =======
December 31, 2002
-----------------
U.S. Government agency securities $64,739 $2,099 $66,838
Mortgage-backed securities 3,350 81 $ (6) 3,425
Equity securities 5,001 5,001
------- ------ ----- -------
Total securities $73,090 $2,180 $ (6) $75,264
======= ====== ===== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held-to-Maturity Cost Gains Losses Value
---- ----- ------ -----
December 31, 2003
-----------------
Obligations of states and
political subdivisions $12,724 $ 741 $ (25) $13,440
Mortgage-backed securities 111 (4) 107
------- ------ ----- -------
Total securities $12,835 $ 741 $ (29) $13,547
======= ====== ===== =======
December 31, 2002
---------------------------
Obligations of states and
political subdivisions $13,821 $ 881 $ (31) $14,671
Mortgage-backed securities 169 (6) 163
------- ------ ----- -------
Total securities $13,990 $ 881 $ (37) $14,834
======= ====== ===== =======
At year-end 2003 and 2002, there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies, in an amount greater
than 10% of shareholders' equity.
Securities with a carrying value of approximately $71,804 at December 31,2003
and $67,758 at December 31, 2002 were pledged to secure public deposits,
repurchase agreements and for other purposes as required or permitted by law.
The amortized cost and estimated fair value of debt securities at December 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
Amortized Fair Amortized Fair
Debt Securities: Cost Value Cost Value
------- ------- ------- -------
Due in one year or less $15,300 $15,621 $ 1,645 $ 1,684
Due in one to five years 21,489 22,164 2,557 2,691
Due in five to ten years 6,311 6,744
Due after ten years 2,211 2,321
Mortgage-backed securities 33,415 33,364 111 107
------- ------- ------- -------
Total debt securities $70,204 $71,149 $12,835 $13,547
======= ======= ======= =======
There were no sales of debt and equity securities during 2003, 2002 and 2001.
14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SECURITIES (continued)
Securities with unrealized losses at year-end 2003 not recognized in income
are as follows:
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
----- ----- ----- ----- ----- -----
Description of Securities
-------------------------
U.S. Government agency securities ........ $ 1,949 $ (51) $ 1,949 $ (51)
Mortgage-backed securities ............... 20,152 (185) $ 1,650 $ (10) 21,802 (195)
Obligations of states and
political subdivisions ................. 1,023 (18) 75 (7) 1,098 (25)
------- ------ ------- ------- ------- -------
$23,124 $ (254) $ 1,725 $ (17) $24,849 $ (271)
======= ====== ======= ======= ======= =======
Unrealized losses on the Company's securities have not been recognized into
income because the issuers'securities are of high credit quality, management has
the intent and ability to hold for the foreseeable future, and the decline in
fair value is largely due to increases in market interest rates.
NOTE C - LOANS
Loans are comprised of the following at December 31:
2003 2002
---- ----
Real estate loans $217,636 $224,212
Commercial and industrial loans 220,724 205,508
Consumer loans 134,720 128,662
All other loans 624 1,179
-------- --------
Total Loans $573,704 $559,561
======== ========
NOTE D - ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses for
the years ended December 31:
2003 2002 2001
---- ---- ----
Balance, beginning of year $7,069 $6,251 $5,385
Loans charged-off:
Real estate 1,110 636 659
Commercial 2,267 2,272 620
Consumer 2,661 2,656 1,903
------ ------ ------
Total loans charged-off 6,038 5,564 3,182
Recoveries of loans:
Real estate 279 119 69
Commercial 1,057 158 17
Consumer 887 635 459
------ ------ ------
Total recoveries of loans 2,223 912 545
Net loan charge-offs (3,815) (4,652) (2,637)
Provision charged to operations 4,339 5,470 3,503
------ ------ ------
Balance, end of year $7,593 $7,069 $6,251
====== ====== ======
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
Information regarding impaired loans is as follows:
2003 2002
---- ----
Balance of impaired loans $1,988 $4,780
====== ======
Less portion for which no specific
allowance is alloctade $ 801
====== ======
Portion of impaired loan balance for which
an allowance for credit losses is allocated $1,187 $4,780
====== ======
Portion of allowance for loan losses allocated
to the impaired loan balance $ 475 $ 500
====== ======
Average investment in impaired loans for the year $2,082 $5,308
====== ======
Past due - 90 days or more and still accruing $ 659 $1,491
====== ======
Nonaccrual $2,655 $6,569
====== ======
Interest on impaired loans was not material for years ending 2003, 2002 or 2001.
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment at December 31:
2003 2002
---- ----
Land $ 1,428 $ 1,428
Buildings 7,648 6,719
Leasehold improvements 2,173 2,162
Furniture and equipment 9,519 8,478
------- -------
20,768 18,787
Less accumulated depreciation 11,626 10,540
------- -------
Total Premises and Equipment $ 9,142 $ 8,247
======= =======
The following is a summary of the future minimum lease payments for facilities
leased by the Company. Lease payments were $350 in 2003 and $339 in 2002.
2004 $ 344
2005 266
2006 240
2007 187
2008 101
Thereafter 7
------
$1,145
======
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - DEPOSITS
Following is a summary of interest-bearing deposits at December 31:
2003 2002
---- ----
NOW accounts $113,423 $105,130
Savings and Money Market 46,603 43,959
Time:
IRA accounts 38,427 38,295
Certificates of Deposit:
In denominations under $100,000 162,570 167,086
In denominations of $100,000 or more 84,251 83,937
-------- --------
Total time deposits 285,248 289,318
-------- --------
Total interest-bearing deposits $445,274 $438,407
======== ========
Following is a summary of total time deposits by remaining maturity at
December 31:
2003
------
Within one year $155,247
From one to two years 60,431
From two to three years 39,509
From three to four years 12,071
From four to five years 15,652
Thereafter 2,338
--------
Total $285,248
========
Brokered deposits were $17,147 and $15,088 at December 31, 2003 and 2002,
respectively.
NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are financing arrangements that
have overnight maturity terms. At maturity, the securities underlying the
agreements are returned to the Company. Information concerning securities sold
under agreements to repurchase is summarized as follows at December 31:
2003 2002
---- ----
Balance outstanding at period-end $24,018 $33,052
------- -------
Weighted average interest rate at period-end .80% 1.08%
------- -------
Average amount outstanding during the year $23,396 $23,090
------- -------
Approximate weighted average interest rate
during the year .87% 1.56%
------- -------
Maximum amount outstanding as of any month-end $35,213 $33,052
------- -------
Securities underlying these agreements at
year-end were as follows:
Carrying value of securities $45,292 $40,650
------- -------
Fair Value $45,658 $42,180
------- -------
The Company had securities sold under agreements to repurchase with overnight
maturity terms totaling $7,512 at December 31, 2003 and $11,280 at December 31,
2002 with a local healthcare provider.
17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - OTHER BORROWED FUNDS
Other borrowed funds at December 31, 2003 and 2002 are comprised of
advances from the Federal Home Loan Bank (FHLB) of Concinnati, promissory notes
and Federal Reserve Bank (FRB) Notes.
FHLB Borrowings Promissory Notes FRB Notes Totals
--------------- ---------------- --------- -------
2003 $90,729 $ 7,031 $ 3,802 $101,562
2002 $84,590 $ 5,345 $ 5,500 $ 95,435
Pursuant to collateral agreements with the FHLB, advances are secured by
$158,935 in qualifying mortgage loans and $5,203 in FHLB stock at December 31,
2003. Fixed rate FHLB advances of $75,654 mature through 2010 and have interest
rates ranging from 1.65% to 6.62%. In addition, variable rate FHLB borrowings of
$15,075 mature through 2004 and have interest rates ranging from 1.09% to 4.00%.
At December 31, 2003, the Company had a cash management line of credit
enabling it to borrow up to $30,000 from the FHLB. All cash management advances
have an original maturity of 90 days. The line of credit must be renewed on an
annual basis. There were $16,000 available on this line of credit at December
31, 2003.
Based on the Company's current FHLB stock ownership, total assets and
pledgeable residential first mortgage loans, the Company had the ability to
obtain borrowings up to a maximum of $143,000 at December 31, 2003.
Promissory notes, issued primarily by the parent company, have fixed rates of
1.75% to 5.25% and are due at various dates through a final maturity date of
September 30, 2005. A total of $4,800 represented promissory notes from related
parties. See Note L for further discussion of related party transactions.
FRB notes consist of the collection of tax payments from Bank customers under
the Treasury Tax and Loan program. These funds have a variable interest rate and
are callable on demand by the U.S. Treasury. At December 31, 2003, the interest
rate for the Company's FRB notes was .73%.
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $27,000 at December 31,
2003 and $30,425 at December 31, 2002. Various investment securities from the
Bank used to collateralize FRB notes totaled $5,995 at December 31, 2003.
Scheduled principal payments over the next five years:
FHLB borrowings Promissory notes FRB Notes Total
--------------- ---------------- --------- -----
2004 $35,729 $5,531 $3,802 $ 45,062
2005 17,117 1,500 18,617
2006 17,608 17,608
2007 4,062 4,062
2008 9,011 9,011
Thereafter 7,202 7,202
------- ------ ------ --------
$90,729 $7,031 $3,802 $101,562
======= ====== ====== ========
NOTE I - SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES
On March 26,2002, a trust formed by the Company issued $8,500 of 5.0% floating
rate trust preferred securities as part of a pooled offering of such securities.
The Company issued subordinated debentures to the trust in exchange for the
proceeds of the offering, which debentures represent the sole asset of the
trust. The Company may redeem all or a portion of these subordinated debentures
at par value beginning March 26, 2007. The subordinated debentures must be
redeemed no later than March 26, 2032. The Company used the net proceeds from
the sale of these securities to provide additional capital to the Bank to
support growth. Debt issuance costs of $256 were incurred and capitalized and
will amortize as a yield adjustment through expected maturity.
On September 7, 2000, a trust formed by the Company issued $5,000 of 10.6%
fixed rate trust preferred securities as part of a pooled offering of such
securities. The Company issued subordinated debentures to the trust in exchange
for the proceeds of the offering, which debentures represent the sole asset of
the trust. The Company may redeem all or a portion of these subordinated
debentures beginning September 7, 2010 at a premium of 105.30% with the call
price declining .53% per year until reaching a call price of par at year twenty
through maturity. The subordinated debentures must be redeemed no later than
September 7, 2030. The Company used the net proceeds from the sale of these
securities to help fund the Company's year-end insurance investments, help
continue the Company's stock repurchases and provide additional capital to the
Bank to support growth. Debt issuance costs of $166 were incurred and
capitalized and will amortize as a yield adjustment through expected maturity.
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES (continued)
Prior to 2003, the trusts were consolidated in the Company's financial
statements, with the trust preferred securities issued by the trust reported in
liabilities and the subordinated debentures eliminated in consolidation. Under
new accounting guidance, FASB Interpretation No. 46, as revised in December
2003, the trusts are no longer consolidated with the Company. Accordingly, the
Company does not report the securities issued by the trust as liabilities, and
instead reports as liabilities the subordinated debentures issued by the Company
and held by the trust, as these are no longer eliminated in consolidation. Since
the Company's equity interest in the trusts cannot be received until the
subordinated debentures are repaid, these amounts have been netted. The effect
of no longer consolidating the trust changes certain balance sheet
classifications but does not change the Company's equity or net income.
Accordingly, the amounts previously reported as "obligated mandatorily
redeemable capital securities of a subsidiary trust" in liabilities have been
recaptioned "subordinated debentures" and continue to be presented in
liabilities on the balance sheet.
NOTE J - INCOME TAXES
The provision for federal income taxes consists of the following components:
2003 2002 2001
---- ---- ----
Current tax expense $3,233 $2,667 $2,278
Deferred tax (benefit) (364) (392) (368)
------ ------ ------
Total income taxes $2,869 $2,275 $1,910
====== ====== ======
The source of gross deferred tax assets and gross deferred tax liabilities
at December 31:
2003 2002
---- ----
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $2,648 $2,251
Deferred compensation 852 709
Depreciation 10
Other 126 76
Items giving rise to deferred tax liabilities:
Investment accretion (60) (63)
Depreciation (57)
FHLB stock dividends (707) (620)
Unrealized gain on securities available-for-sale (321) (739)
Other (99) (24)
------ ------
Net deferred tax asset $2,382 $1,600
====== ======
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before taxes is as follows:
2003 2002 2001
---- ---- ----
Statutory tax $3,176 $2,703 $2,314
Effect of nontaxable interest
and dividends (236) (254) (263)
Nondeductible interest expense 23 30 42
Income from bank owned insurance (187) (198) (176)
Effect of state income tax 97
Other items (4) (6) (7)
------ ------ ------
Total income taxes $2,869 $2,275 $1,910
====== ====== ======
19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. The Bank's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit, and financial
guarantees written, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for instruments recorded on the balance
sheet.
Following is a summary of such commitments at December 31:
2003 2002
----- -----
Fixed rate $ 731 $ 1,262
Variable rate 49,926 44,730
Standby letters of credit 7,839 9,158
The interest rate on fixed rate commitments ranged from 5.75% to 7.625% at
December 31, 2003.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income-producing commercial
properties.
There are various contingent liabilities that are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.
The bank subsidiary of the Company is required to maintain average reserve
balances with the Federal Reserve Bank or as cash in the vault. The amount of
those reserve balances for the year ended December 31, 2003, was approximately
$6,897.
NOTE L - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies in which they are
affiliated were loan customers during 2003. A summary of activity on these
borrower relationships with aggregate debt greater than $60 is as follows:
Total loans at January 1, 2003 $18,228
New loans 1,233
Repayments (982)
Other changes (13,070)
-------
Total loans at December 31, 2003 $ 5,409
=======
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - EMPLOYEE BENEFITS
The Bank has a profit-sharing plan for the benefit of its employees and their
beneficiaries. Contributions to the plan are determined by the Board of
Directors. Contributions charged to expense were $152, $149 and $134 for 2003,
2002 and 2001.
The Company maintains an Employee Stock Ownership Plan (ESOP) covering
substantially all of its employees. The Company makes discretionary
contributions to the plan which are allocated to plan participants based on
relative compensation. The total number of shares held by the Plan, all of which
have been allocated to participant accounts were 163,723 and 159,595 at December
31, 2003 and 2002. In addition, the Bank made contributions to its ESOP Trust as
follows:
Years ended December 31
2003 2002 2001
---- ---- ----
Number of shares issued 7,400 12,800 0
====== ====== =====
Value of stock contributed $ 198 $ 285
Cash contributed 105 158 $ 123
----- ----- -----
Total charged to expense $ 303 $ 443 $ 123
===== ===== =====
Life insurance contracts with a cash surrender value of $13,222 have been
purchased by the Company, the owner of the policies. The purpose of these
contracts was to replace a current group life insurance program for executive
officers, implement a deferred compensation plan for directors and executive
officers, implement a director retirement plan and implement a supplemental
retirement plan for certain officers. Under the deferred compensation plan, the
Company pays each participant the amount of fees deferred plus interest over the
participant's desired term, upon termination of service. Under the director
retirement plan, participants are eligible to receive ongoing compensation
payments upon retirement subject to length of service. The supplemental
retirement plan provides payments to select executive officers upon retirement
based upon a compensation formula determined by the Board of Directors. The
present value of payments expected to be provided are accrued during the service
period of the covered individuals. Expenses related to the plans for each of the
last three years amounted to $312, $267 and $235.
NOTE N - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes for the years ended
December 31, are as follow:
2003 2002 2001
Net unrealized holding gains(losses) ---- ---- ----
on available-for-sale securities $(1,229) $ 600 $ 920
Tax effect (414) 204 313
------- ------- -------
Other comprehensive income(loss) $ (815) $ 396 $ 607
======= ======= =======
NOTE O - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: For these short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Interest-bearing Deposits in Other Banks: For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities: For securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments. The fair value for FHLB stock is
estimated at carrying value.
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE O - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Loans: The fair value of fixed rate loans is estimated by discounting future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The
fair market value of commitments is not material at December 31, 2003 or 2002.
The fair value for variable rate loans is estimated to be equal to carrying
value.
Deposit Liabilities: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
Borrowings:For other borrowed funds and obligated mandatorily redeemable capital
securities of subsidiary trust, rates currently available to the Bank for debt
with similar terms and remaining maturities are used to estimate fair value. For
securities sold under agreements to repurchase, carrying value is a reasonable
estimate of fair value.
Accrued Interest Receivable and Payable: For accrued interest receivable and
payable, the carrying amount is a reasonable estimate of fair value.
In addition, other assets and liabilities that are not defined as financial
instruments were not included in the disclosures below, such as premises and
equipment and life insurance contracts.
The estimated fair values of the Company's financial instruments at December
31, are as follows:
2003 2002
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and cash equivalents $ 17,753 $ 17,753 $ 23,451 $ 23,451
Interest-bearing deposits
in other banks 859 859 1,505 1,505
Securities 89,187 89,899 89,254 90,098
Loans 566,111 574,942 552,492 562,727
Accrued interest receivable 2,700 2,700 3,144 3,144
Financial liabilities:
Deposits (507,509) (509,945) (497,404) (503,295)
Securities sold under agreements
to repurchase (24,018) (24,018) (33,052) (33,052)
Other borrowed funds (101,562) (104,914) (95,435) (100,515)
Subordinated debentures (13,500) (13,742)
Obligated mandatorily redeemable
capital securities of subsidiary
trust (13,500) (13,746)
Accrued interest payable (3,410) (3,410) (4,327) (4,327)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE P - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements administered
by federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgements by regulators about components, risk weightings and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year-end, consolidated actual capital levels and minimum required levels for
the Company and Bank were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2003
Total capital (to risk weighted assets)
Consolidated $72,864 13.3% $43,841 8.0% $54,802 10.0%
The Ohio Valley Bank Company $65,324 12.1% $43,071 8.0% $53,838 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $66,003 12.0% $21,921 4.0% $32,881 6.0%
The Ohio Valley Bank Company $58,587 10.9% $21,535 4.0% $32,303 6.0%
Tier 1 capital (to average assets)
Consolidated $66,003 9.5% $27,728 4.0% $34,660 5.0%
The Ohio Valley Bank Company $58,587 8.5% $27,533 4.0% $34,416 5.0%
2002
Total capital (to risk weighted assets)
Consolidated $68,149 12.2% $44,663 8.0% $55,829 10.0%
The Ohio Valley Bank Company $61,864 12.2% $40,602 8.0% $50,753 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $61,169 11.0% $22,332 4.0% $33,497 6.0%
The Ohio Valley Bank Company $55,515 10.9% $20,301 4.0% $30,452 6.0%
Tier 1 capital (to average assets)
Consolidated $61,169 9.2% $26,702 4.0% $33,378 5.0%
The Ohio Valley Bank Company $55,515 8.1% $27,271 4.0% $34,089 5.0%
At year-end 2003 and 2002, the most recent regulatory notifications categorized
the Company and Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the institution's category.
Dividends paid by the subsidiaries are the primary source of funds available to
the Company for payment of dividends to shareholders and for other working
capital needs. The payment of dividends by the subsidiaries to the Company is
subject to restrictions by regulatory authorities. These restrictions generally
limit dividends to the current and prior two years retained earnings. At
December 31, 2003, approximately $7,676 of the subsidiaries' retained earnings
were available for dividends under these guidelines. In addition to these
restrictions, as a practical matter, dividend payments cannot reduce regulatory
capital levels below minimum regulatory guidelines. These restrictions do not
presently limit the Company from paying dividends at its historical level.
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Below is condensed financial information of Ohio Valley Banc Corp. In this
information, the parent's investment in subsidiaries is stated at cost plus
equity in undistributed earnings of the subsidiaries since acquisition. This
information should be read in conjunction with the consolidated financial
statements.
CONDENSED STATEMENTS OF CONDITION at December 31:
Assets 2003 2002
---- ----
Cash and cash equivalents $ 3,430 $ 1,831
Interest-bearing balances with subsidiaries 4 4
Investment in subsidiaries 62,806 60,307
Notes receivable - subsidiaries 6,943 5,332
Other assets 2,083 2,087
------- -------
Total assets $75,266 $69,561
======= =======
Liabilities
Notes Payable $ 7,031 $ 5,344
Subordinated debentures 13,500 13,500
Other liabilities 327 342
------- -------
Total liabilities $20,858 $19,186
------- -------
Shareholders' Equity
Total shareholders' equity 54,408 50,375
------- -------
Total liabilities and shareholders' equity $75,266 $69,561
======= =======
CONDENSED STATEMENTS OF INCOME
Years ended December 31:
2003 2002 2001
---- ---- ----
Income:
Interest on deposits $ 2
Interest on loans $ 1 $ 2 3
Interest on notes 223 203 282
Other operating income 47 42 8
Dividends from bank subsidiary 3,904 4,428 3,317
Expenses:
Interest on notes 225 219 308
Interest on subordinated debentures 944 921 546
Operating expenses 242 208 229
------ ------ ------
Income before income taxes and equity in
undistributed earnings of subsidiaries 2,764 3,327 2,529
Income tax benefit 378 365 262
Equity in undistributed earnings of subsidiaries 3,330 1,983 2,104
------ ------ ------
Net Income $6,472 $5,675 $4,895
====== ====== ======
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31: 2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income $6,472 $5,675 $4,895
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries(3,330) (1,983) (2,104)
Change in other assets 20 49 10
Change in other liabilities (15) (185) (24)
------ ------ ------
Net cash provided by
operating activities 3,147 3,556 2,777
------ ------ ------
Cash flows from investing activities:
Capital contributions to subsidiaries (8,000)
Change in other long-term investments (263)
Change in other short-term investments (1,645) (2,258) 2,860
Change in subsidiary line of credit 34 16 (2)
Change in interest-bearing deposits 255
------ ------ ------
Net cash provided by (used in)
investing activities (1,611) (10,505) 3,113
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 8,762
Change in other short-term borrowings 1,687 1,557 (1,789)
Cash dividends paid (2,468) (2,315) (2,733)
Proceeds from issuance of common stock 908 926 466
Purchases of treasury stock (64) (607) (1,427)
------ ------ ------
Net cash provided by (used in)
financing activities 63 8,323 (5,483)
------ ------ ------
Cash and cash equivalents:
Change in cash and cash equivalents 1,599 1,374 407
Cash and cash equivalents at beginning of year 1,831 457 50
------ ------ ------
Cash and cash equivalents at end of year $3,430 $1,831 $ 457
====== ====== ======
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE R - CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarters Ended
2003 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Total interest income $11,611 $11,493 $11,179 $10,877
Total interest expense 4,695 4,511 4,267 4,172
Net interest income 6,916 6,982 6,912 6,705
Provision for loan losses 1,385 1,246 996 712
Net Income 1,460 1,572 1,590 1,850
Net income per share $ .42 $ .45 $ .46 $ .53
2002
Total interest income $11,609 $11,887 $12,119 $12,156
Total interest expense 5,236 5,191 5,280 5,103
Net interest income 6,373 6,696 6,839 7,053
Provision for loan losses 1,142 813 1,541 1,974
Net Income 1,252 1,353 1,409 1,661
Net income per share $ .36 $ .39 $ .41 $ .48
2001
Total interest income $11,523 $11,867 $12,159 $12,036
Total interest expense 6,354 6,081 6,065 5,735
Net interest income 5,169 5,786 6,094 6,301
Provision for loan losses 427 646 1,092 1,338
Net Income 1,107 1,154 1,220 1,414
Net income per share $ .32 $ .33 $ .35 $ .41
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this discussion is to provide an analysis of the Company's
financial condition and results of operations which is not otherwise apparent
from the audited consolidated financial statements included in this report. The
accompanying consolidated financial information has been prepared by management
in conformity with accounting principles generally accepted in the United States
of America (US GAAP) and is consistent with that reported in the consolidated
statements. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following tables and related discussion.
RESULTS OF OPERATIONS:
SUMMARY
Ohio Valley Banc Corp. generated earnings of $6,472 for 2003 an increase of
14.0% from 2002. Net income was up 15.9% in 2002. Net income per share of $1.86
for 2003 represented continued growth from $1.64 in 2002 and $1.41 in 2001.
Asset growth for 2003 was $10,971 or 1.6% resulting in total assets at year-end
of $707,327. The Company's return on assets (ROA) increased to .93% for 2003
compared to .85% in 2002 and .83% in 2001. Return on equity (ROE) was 12.43% for
2003 compared to 11.85% in 2002 and 10.80% in 2001. The average of the bid and
ask price for the Company's stock was $26.74 at December 31, 2003 compared to
$20.61 at year-end 2002 and $24.20 at year-end 2001.
NET INTEREST INCOME
The most significant portion of the Company's revenue, net interest income,
results from properly managing the spread between interest income on earning
assets (i.e., loans and investments) and interest expense incurred on
interest-bearing liabilities (i.e., deposits and borrowings). Net interest
income is affected by changes in both the average volume and mix of the balance
sheet and the level of interest rates for financial instruments. Changes in net
interest income are measured by net interest margin and net interest spread. Net
interest margin is expressed as net interest income divided by average
interest-earning assets. Net interest spread is the difference between the
average yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities. Both of these are reported on a taxable equivalent
basis. Net interest margin is greater than net interest spread due to the
interest earned on interest-earning assets funded from noninterest bearing
funding sources, primarily demand deposits and shareholders' equity. Following
is a discussion of changes in interest-earning assets, interest-bearing
liabilities and the associated impact on interest income and interest expense
for the three years ending December 31, 2003. Tables I and II have been prepared
to summarize the significant changes outlined in this analysis.
Net interest income on a fully tax equivalent basis (FTE) increased $547 in
2003, an increase of 2.0% compared to the $27,284 earned in 2002. The growth was
primarily attributable to an increase in earning assets and a decrease in
funding costs which were partially offset by a decrease in net interest margin.
Net interest income (FTE) increased $3,604 in 2002, an increase of 15.2%
compared to the $23,680 earned in 2001. The growth in net interest income for
2002 was attributable to a higher level of interest-earning assets as well as a
decrease in funding costs resulting in a higher net interest margin.
For 2003, average earning assets grew by 3.7% as compared to growth of 13.7%
in 2002. Driving this continued growth in earning assets was the growth in
average loan balances. Average total loans expanded $21,706 or 4.0% from 2002
and represented 85.8% of earning assets. This compares to average loan growth of
13.5% for 2002 and loans representing 85.6% of earning assets. Average loans
increased at a smaller rate for 2003 due to a slower demand for loans as well as
a decline in the Company's real estate portfolio which is discussed within
"Loans" on page 33. Management continues to focus on generating loan growth as
this portion of earning assets provides the greatest return to the Company.
Although loans comprise a larger percentage of earning assets, management is
comfortable with the current level of loans based on collateral values, the
balance of the allowance for loan losses and the Company's well-capitalized
status. In addition, average securities increased from 12.6% of earning assets
for 2001 to 13.1% in 2003. Management maintains securities at a dollar level
adequate enough to provide ample liquidity and cover pledging requirements.
Average interest-bearing liabilities increased 3.3% between 2002 and 2003 and
increased 14.1% between 2001 and 2002. Average interest-bearing liabilities
increased at a slower rate in 2003 due to the funding needs relative to the
slower growth in earning assets. While interest-bearing liabilities consist
mostly of time deposits, this composition has continued to decline from 54.4 %
of interest-bearing liabilities in 2001 to 50.6% in 2003. A large portion of
interest-bearing deposits has shifted to other borrowed funds and NOW accounts
which have grown to comprise 36.9% of interest-bearing liabilities in 2003 from
33.6% in 2001. Other borrowings and NOW accounts have been a cost-effective
funding source for the Company's increase in earning assets in 2003 with the
average cost of both being 3.30% compared to the time deposit average cost of
3.48%. NOW account balances were influenced by the growth in the Company's
public fund deposits and Shareholder Gold product.
The net interest margin decreased .07% to 4.27% in 2003 from 4.34% in 2002.
This is compared to a .06% increase in the net interest margin in 2002. The
change in net interest margin for 2003 was primarily from the impact of interest
free funds which decreased from .45% in 2002 to .38% in 2003. There was no
change in the net interest spread as the decrease in yield on earning assets of
..68% was offset by the decrease in funding costs of .68%. Contributing to the
decline in yield on earning assets was a decrease in the return on average loans
of .76% from 2002. Total interest expense declined 15.2% due to the cost of time
deposits decreasing .84%, the cost of NOW accounts decreasing .47% and the cost
of borrowings decreasing .29%, all impacted by the historical low rate
environment in 2003. The .07% decrease in the contribution of interest free
funding sources combined with no change in the net interest spread yielded the
..07% decrease in the net interest margin. The 2002 increase in net interest
margin of .06% was due to a .22% increase in net interest spread with lower
asset yields of 1.01% being completely offset by lower funding costs of 1.23%.
The increase in net interest spread was partially offset by a .16% decrease in
interest free funding sources.
NONINTEREST INCOME AND EXPENSE
Total noninterest income increased $348 in 2003, a 6.2% gain over 2002. Total
noninterest income increased 9.8% in 2002. Contributing most to the growth in
noninterest income was the Company's secondary market sales of new real estate
loan originations which generated an additional $368 over 2002. The Company
began selling long-term fixed rate loans to the secondary market in the third
quarter of 2002 to help minimize interest rate risk. Service charge income on
deposit accounts was up $42 in 2003 and $115 in 2002 driven by the continued
growth in the Bank's transaction account balances (i.e. checking accounts).
Income earned on life insurance contracts from the Company's supplemental
retirement program was down $27 in 2003 and up $88 in 2002. The 2003 decline was
reflective of a lower earnings credit rate tied to each of the policies for the
calendar year. For 2003, other noninterest income decreased $35 compared to 2002
largely due to a decline in loan insurance commission income. Loan insurance was
affected in 2003 by state mandated reductions in insurance premiums as well as
fewer opportunities to sell insurance relative to the slower growth in loans.
The decline in loan insurance income was partially offset by increases in other
noninterest income areas such as loan service fees and debit/credit card income.
Additionally, other noninterest income in 2002 increased $233 over 2001 due to
other fee income from debit/credit card transactions, commissions earned from
loan insurance sales and loan service fees.
Total noninterest expense increased $642 or 3.4% in 2003 and $1,004 or 5.5% in
2002. The most significant expense in this category is salary and employee
benefits which increased $930 or 8.7% from 2002 to 2003. Contributing most to
this increase were annual merit increases, rising benefit costs and increases to
incentive compensation plans in relation to the successful growth in earnings
experienced in 2003. Further contributing to the salary increase was the
Company's full-time equivalent employee base increasing from 252 employees at
year-end 2002 to 262 employees at year-end 2003. Salaries and employee benefits
expense also increased $826 or 8.4% from 2001 to 2002. Excluding the renovation
of the Company's Milton, West Virginia office in the fourth quarter, growth or
improvements in other offices and fixed assets has been relatively stable
throughout 2003. This has provided for a net decrease in occupancy and furniture
and equipment expense, which were collectively down $18 in 2003 versus a decline
of $39 in 2002. Corporation franchise tax increased $196 from 2002 to 2003
largely due to a tax assessment charged to expense in 2001 that was related to
the exclusion of intercompany indebtedness for taxable net worth. The assessment
was challenged and the Company was successful in having the charge reversed in
2002 which lowered expense by $192 and had an opposite reaction to expense in
2003. Data processing expenses increased $70 in 2003 and decreased $12 in 2002
largely due to the Company's debit/credit card and ATM activities. Other
noninterest expense was down $536 in 2003 and up $421 in 2002. The variances for
both years were largely driven by a one time charge off of fraudulent checks in
the second quarter of 2002 with the impact net of recoveries being $384 at the
end of 2003. The Company also experienced increases in other noninterest expense
areas such as legal, marketing, overhead expenses related to continuing growth
and inflationary increases. The Company's efficiency ratio for 2003 remained
steady at 58.5% compared to 58.1% in 2002, where the Company's noninterest
expense had slightly outpaced the growth in revenue sources (net interest income
and noninterest income). The efficiency ratio for 2002 improved to 58.1% from
62.5% in 2001.
FINANCIAL CONDITION:
SECURITIES
Management's goal in structuring the portfolio is to maintain a prudent level
of liquidity while providing an acceptable rate of return without sacrificing
asset quality. Maturing securities have historically provided sufficient
liquidity such that management has not sold a debt security in several years.
The balance of total securities remained relatively the same, decreasing only
$67 compared to 2002 with the ratio of securities to total assets also
decreasing slightly to 12.6% at December 31, 2003 compared to 12.8% at December
31, 2002. The Company's demand for securities has shifted from Government agency
bonds which are down $29,053 to mortgage-backed securities which are up $29,939
over 2002. The increase in mortgage-backed securities is anticipated to enhance
the Company's investment portfolio with a higher rate of return and a more rapid
repayment of principal as compared to Government agency bonds. Due to the
historical low rate environment and its respective market conditions, the yield
on reinvestment opportunities for securities has continued to decline in 2003.
The weighted average FTE yield on debt securities at year-end 2003 was 4.54% as
compared to 4.69% at year-end 2002. Table III provides a summary of the
portfolio by category and remaining contractual maturity. Issues classified as
equity securities have no stated maturity date and are not included in Table
III.
LOANS
In 2003, total loans increased $14,143 or 2.5% to reach $573,704. The largest
contributor was commercial loans which experienced growth of $15,216 or 7.4%.
The commercial loan area originated over $99,000 in loans for 2003.
Approximately 66% of these loans were originated in Gallia, Jackson, Pike and
Franklin counties and 21% were originated from the West Virginia markets. The
Company's commercial loan growth was impacted by the historical low interest
rate environment experienced during 2003 contributing to a higher volume of
business opportunities as well as the success experienced in the Company's
growing West Virginia market. Contributions to the loan portfolio were also made
from the Company's consumer loan portfolio which expanded by $6,058 representing
a 4.7% gain. The largest portion of consumer loans were originated through the
Bank's indirect automobile loans which were up $3,185 over 2002 and are subject
to the same underwriting as the Company's regular loans. As with commercial
loans, auto indirect loan opportunities were impacted by the low interest rate
environment evident in 2003 which allowed for more aggressive pricing on these
loan types. In addition, home equity capital line balances were up $1,594 over
2002. At December 31, 2003, auto indirect and home equity capital lines
represented nearly half of total consumer loans. In 2003, real estate loans
declined by $6,576 or 2.9%. The Company began selling loans to the Federal Home
Loan Mortgage Corporation ("Freddie Mac") in the third quarter of 2002 and
continued this emphasis into 2003 which contributed to the overall decline in
real estate mortgage loan balances. The Company specifically emphasized the
selling of 15 to 30 year real estate loans at fixed rates while retaining new
originations of 1-year adjustable rate loans which will assist management in
minimizing its exposure to interest rate risk, particularly in a "rising" rate
environment. As a result, while real estate loans are down from year-end 2002,
the Company has been able to grow its adjustable rate mortgages nearly $49,000.
The Company has generally originated real estate loans for its own portfolio and
while the emphasis in 2003 was on selling long-term fixed rate real estate loans
to the secondary market, management anticipates a decline in mortgage
refinancing in 2004. Tables V, VI, and VII have been provided to enhance the
understanding of the loan portfolio and the allowance for potential loan losses.
Management evaluates the adequacy of the allowance for loan losses quarterly
based on several factors including, but not limited to, general economic
conditions, loan portfolio composition, prior loan loss experience, and
management's estimate of probable losses. Actual losses on loans are reflected
as reductions in the reserve and are referred to as charge-offs. The amount of
the provision for loan losses charged to operating expenses is the amount
necessary, in management's opinion, to maintain the allowance for loan losses at
an adequate level. The allowance required is primarily a function of the
relative quality of the loans in the loan portfolio, the mix of loans in the
portfolio and the rate of growth of outstanding loans.
The ratio of net charge-offs to average total loans for the year ending 2003
was .68% down from .86% for the year ending 2002, due mostly to the $837
decrease in net charge-offs within the consumer and commercial loan portfolios.
This decrease in net charge-offs is indicative of the stronger emphasis
management continues to place on asset quality within the Company's loan
portfolio. Nonperforming loans, which include nonaccrual loans and accruing
loans past due 90 days or more, are returned to performing status when the loan
is brought current and has performed in accordance with contractual terms.
Nonperforming loans were approximately $4,084 at December 31, 2003 compared to
$8,060 at the end of 2002. As a result, the Company's nonperforming loans as a
percentage of total loans improved to .58% at year-end 2003 as compared to 1.44%
at year-end 2002. Nonperforming assets to total assets also decreased to .76% at
December 31, 2003 as compared to 1.22% at year-end 2002. The decline in
nonperforming ratios was impacted primarily by the payment of a nonperforming
loan during the fourth quarter of 2003. Nonperforming assets still included a
single line representing .29% of total assets at December 31, 2003.
For 2003, provision expense was down by $1,131 compared to the provision
expense for 2002. This decrease in provision expense was largely associated with
the decrease in net charge-offs as a percent of average total loans as well as a
decline in both nonperforming loans and expected losses. At December 31, 2003,
the allowance for loan losses totaled $7,593, or 1.32% of total loans, up $524
from December 31, 2002 when the allowance was 1.26% of total loans. Management
increased the allowance as a percent of total loans in 2003 due to an increase
in total loans outstanding and a change in mix of the loan portfolio to more
commercial loans and fewer residential mortgage loans. Based on this quarterly
evaluation, as well as the resolution of the above referred nonperforming loan,
management feels that the allowance is adequate to absorb probable losses in the
portfolio based on collateral values as well as a high relative volume of real
estate mortgages.
DEPOSITS
Interest-earning assets are funded primarily by core deposits.The accompanying
table IV shows the composition of total deposits as of December 31, 2003. Total
deposits grew $10,105 or 2.0% to reach $507,509 by year-end 2003. Leading the
growth in deposits were interest-bearing demand deposits which increased $8,293
or 7.9% over 2002. Driving this growth was a $6,000 gain in the Company's new
Shareholder Gold product which was introduced in 2003 and offers a NOW account
and many banking benefits to Company shareholders. Interest-bearing demand
deposits were also impacted by an increase in the Company's public fund NOW
accounts which were up $4,152 over 2002. Furthermore, savings and money market
deposits increased $2,644 or 6.0% and non-interest bearing demand deposits
increased $3,238 or 5.5% over 2002. Partially offsetting total deposit growth
was a decrease in the Company's time deposits which decreased $4,070 or 1.4% as
compared to 2002. Time deposits, which are traditionally used to fund loan
growth, were not as aggressively needed due to the slower growth in loan demand
throughout 2003. With the previous expansion into new markets, management
expects continued growth in deposits in 2004.
FUNDS BORROWED
During 2003, the Company's total borrowings, consisting of securities sold
under agreements to repurchase ("repurchase agreements") and other borrowed
funds, decreased to $125,580 at December 31, 2003 compared to $128,487 at
December 31, 2002. The Company's repurchase agreements decreased $9,034 from
year-end 2002. This decrease was partially offset by a $6,127 increase in other
borrowed funds. Other borrowed funds consist primarily of Federal Home Loan Bank
(FHLB) advances and promissory notes. FHLB advances are subject to collateral
agreements and are secured by qualifying first mortgage loans and FHLB stock. At
December 31, 2003, the balance of FHLB advances totaled $90,729 compared to
$84,590 at December 31, 2002. Management utilized FHLB advances primarily to
fund long-term assets. Management will continue to evaluate borrowings from the
FHLB as an alternative funding source in 2004. Promissory notes are primarily
associated with funding loans at Loan Central and were issued with various terms
through a final maturity date of 2005.
CAPITAL RESOURCES
The Company maintains a capital level that exceeds regulatory requirements as
a margin of safety for its depositors and shareholders. Shareholders' equity
totaled $54,408 at December 31, 2003, compared to $50,375 at December 31, 2002,
which represents growth of 8.0%. All of the capital ratios exceeded the
regulatory minimum guidelines as identified in Note P "Regulatory Matters".
Cash dividends paid of $2,468 for 2003 represents a 6.6% increase over the
cash dividends paid during 2002. The increase in cash dividends paid is due to
an increase in the dividend rate paid per share.
The Company maintains a dividend reinvestment and stock purchase plan. The
plan allows shareholders to purchase additional shares of company stock. A
benefit of the plan is to permit the shareholders to reinvest cash dividends as
well as make supplemental purchases without the usual payment of brokerage
commissions. During 2003, shareholders invested $1,200 through the dividend
reinvestment and stock purchase plan. These proceeds resulted in the issuance of
30,477 new shares and the acquisition of 18,984 existing shares through open
market purchases for a total of 49,461 shares. At December 31, 2003,
approximately 76% of the shareholders were enrolled in the dividend reinvestment
plan. Members' reinvestment of dividends and supplemental purchases in 2003
represented 47% of year-to-date dividends paid. In addition, as part of the
Company's stock repurchase program in 2003, management purchased 2,496 shares in
the open market. The current stock repurchase program limits the number of
shares to be repurchased to 175,000 shares. At December 31, 2003, the Company
could repurchase an additional 172,500 shares under the existing share
repurchase program which is scheduled to expire on February 16, 2004. Recently,
the Company's Board of Directors voted to extend the maturity date of the stock
repurchase program to February 15, 2005.
INTEREST RATE SENSITIVITY AND LIQUIDITY
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 and net income fluctuations from the flat rate scenario
illustrate the risks associated with the projected balance sheet structure.
The Company's Asset/Liability Committee 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 estimated change in net interest income reflects minimal interest rate
risk exposure and is well within the policy guidelines established by the Board.
Due to historically low interest rates management has implemented various
strategies to reposition the balance sheet to further reduce the Company's
exposure to rising interest rates. Management has been targeting variable rate
residential real estate loans while selling long term, fixed rate residential
mortgages upon origination. For 2003, adjustable rate mortgages are up nearly
$49 million and fixed rate mortgages are down over $45 million. In addition, the
Company sold over $20 million in fixed rate mortgages to the secondary market
upon origination. In a declining interest rate environment, the Company is
protected by interest rate floors on variable rate real estate and commercial
loans. Management has also 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's net interest income exposure to
a change in interest rates has declined.
Liquidity management should focus on matching the cash inflows and outflows
within the Company's natural market for loans and deposits. This goal is
accomplished by maintaining sufficient asset liquidity along with stable core
deposits. The primary sources of liquidity are interest-bearing balances with
banks, federal funds sold and the maturity and repayment of investments and
loans as well as cash flows provided from operations. The Company has classified
$76,352 in securities as available-for-sale at December 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 December 31,
2003, the Bank could borrow an additional $23,000 from the Federal Home Loan
Bank. The Bank also has the ability to purchase federal funds from several of
its correspondent banks. See the consolidated statement of cash flows for
further cash flow information. Management does not rely on any single source of
liquidity and monitors the level of liquidity based on many factors affecting
the Company's financial condition.
INFLATION
Consolidated financial data included herein has been prepared in accordance
with US GAAP. Presently, US GAAP requires the Company to measure financial
position and operating results in terms of historical dollars with the exception
of securities available-for-sale, which are carried at fair value. Changes in
the relative value of money due to inflation or deflation are generally not
considered.
In management's opinion, changes in interest rates affect the financial
institution to a far greater degree than changes in the inflation rate. While
interest rates are greatly influenced by changes in the inflation rate, they do
not change at the same rate or in the same magnitude as the inflation rate.
Rather, interest rate volatility is based on changes in the expected rate of
inflation, as well as monetary and fiscal policies. A financial institution's
ability to be relatively unaffected by changes in interest rates is a good
indicator of its capability to perform in today's volatile economic environment.
The Company seeks to insulate itself from interest rate volatility by ensuring
that rate sensitive assets and rate sensitive liabilities respond to changes in
interest rates in a similar time frame and to a similar degree.
CRITICAL ACCOUNTING POLICIES
The most significant accounting policies followed by the Company are presented
in Note A to the consolidated financial statements. These policies, along with
the disclosures presented in the other financial statement notes, provide
information on how significant assets and liabilities are valued in the
financial statements and how those values are deter-mined. Management views
critical accounting policies to be those which are highly dependent on
subjective or complex judgments, estimates and assumptions, and where changes in
those estimates and assumptions could have a significant impact on the financial
statements. Management currently views the adequacy of the allowance for loan
losses to be a critical accounting policy.
Allowance for Loan Losses: To arrive at the total dollars necessary to maintain
an allowance level sufficient to absorb the probable losses at a specific
financial statement date, management has developed procedures to establish and
then evaluate the allowance once determined. The allowance consists of the
following components: specific allocation, general allocation and other
estimated general allocation.
To arrive at the amount required for the specific allocation component, the
Company evaluates loans for which a loss is thought to have been incurred,
either in part or whole. To achieve this task, the Company has created a
quarterly report ("Watchlist") which lists loans from each loan portfolio that
management deems a potential credit risk. The criteria to be placed in this
report are: past due 60 or more days, nonaccrual and loans management has
determined to be a potential problem loan. These loans are reviewed and analyzed
for potential loss by the Large Loan Review Committee which consists of the
President and Senior Management with lending authority. The function of the
committee is to review and analyze large borrowers for credit risk, scrutinize
the Watchlist and evaluate the adequacy of the allowance for loan losses and
other credit risk related issues. The committee has established a grading system
which evaluates borrowers from 1 (least risk) to 10 (greatest risk) to evaluate
the credit risk for each commercial borrower. After the committee evaluates each
relationship listed in the report, a specific loss allocation may be assessed.
This allocation is made up of amounts allocated to the commercial (70%),
consumer (17%) and real estate (13%) loan portfolios. The total specific
allocation at December 31, 2003 was $2,310.
Impaired loans consist of loans with balances of $100 or more on nonaccrual
status or non-performing in nature. These loans are also individually analyzed
and a specific allocation may be assessed based on expected credit loss.
Collateral dependent loans will be evaluated to determine a fair value of the
collateral securing the loan. Non-performing loan balances continue to decline
from the previous year (down 59%). Any changes in the allocation will be
reflected in the specific allocation component. As of December 31, 2003, the
total allocation for impaired loans is $475 which is reflected in the specific
allocation of $2,310.
The second component (general allowance) consists of the total loan portfolio
balances minus loan balances already reviewed (specific allocation). A quarterly
large loan report is prepared to provide management a "snapshot" of information
on larger-balance loans (of $550 or greater), which include: loan grades,
collateral values, etc. This tool allows management to monitor this group of
borrowers. Therefore, only small balance commercial loans and homogeneous loans
(consumer and real estate loans) have not been specifically reviewed to
determine minor delinquencies, current collateral values and present credit
risk. The Company uses a historic loss risk factor to calculate the probable
losses for this component. This risk factor will reflect an actual 12 month
performance evaluation of credit losses per loan portfolio. The risk factor is
achieved by taking the average charge off, per loan portfolio, for the last 12
consecutive months and dividing it by the average loan balance for each loan
portfolio over the same time period. The Company believes that by using a 12
month "rolling" average loss risk factor, the estimated allowance will more
accurately reflect current losses. The total general allowance at December 31,
2003 was $4,500.
The final component used to evaluate the adequacy of the allowance includes
five additional areas that management believes can have an impact on collecting
all principal and interest due. These areas are: 1) delinquency trends, 2)
current economic conditions, 3) non-performing loan trends, 4) recovery vs.
charge off and 5) personnel changes. Each of these areas is given a percentage
factor, from a low of 10% to a high of 30%, determined by the importance of the
impact it may have on the allowance. After evaluating each area, an overall
factor of 15% was determined for this reporting period. To calculate the impact
of other economic conditions on the allowance, the total general allowance is
multiplied by this factor. These dollars are then added to the other two
components to provide for economic conditions in our assessment area. The
Company's assessment area takes in ten counties in two states, Ohio and West
Virginia. Each assessment area has its individual economic conditions; however,
the Company has chosen to average the risk factors for compiling the economic
risk factor. The total allocation for this component at December 31, 2003 was
$783.
The adequacy of the allowance may be determined by certain specific and
nonspecific allocations; however, the total allocation is available for any
credit losses that may impact the loan portfolios. The Company has determined
the estimated adequate allowance as of December 31, 2003 to be $7,593.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934 and as defined in the Private Securities
Litigation Reform Act of 1995. Such statements are often, but not always,
identified by the use of such words as "believes," "anticipates," "expects," and
similar expressions. Such statements involve various important assumptions,
risks, uncertainties, and other factors, many of which are beyond our control
that could cause actual results to differ materially from those expressed in
such forward looking statements. These factors include, but are not limited to:
changes in political, economic or other factors such as inflation rates,
recessionary or expansive trends, and taxes; competitive pressures; fluctuations
in interest rates; the level of defaults and prepayment on loans made by the
Company; unanticipated litigation, claims, or assessments; fluctuations in the
cost of obtaining funds to make loans; and regulatory changes. Readers are
cautioned not to place undue reliance on such forward looking statements, which
speak only as of the date hereof. The Company undertakes no obligation and
disclaims any intention to republish revised or updated forward looking
statements, whether as a result of new information, unanticipated future events
or otherwise.
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I
December 31
------------------------------------------------------------------------------------
2003 2002 2001
(dollars in thousands) -------------------------- -------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
- ------
Interest-earning assets:
Interest-bearing balances $ 1,360 $ 8 .61% $ 1,607 15 .91% $ 1,068 $ 33 3.03%
with banks
Federal funds sold 5,842 63 1.07 14,643 237 1.62 8,125 285 3.51
Securities:
Taxable 71,361 2,942 4.12 59,831 2,837 4.74 54,755 3,188 5.82
Tax exempt 13,888 996 7.17 14,582 1,051 7.21 15,034 1,079 7.18
Loans 559,854 41,467 7.41 538,148 43,954 8.17 473,998 43,330 9.14
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
earning assets 652,305 45,476 6.97% 628,811 48,094 7.65% 552,980 47,915 8.66%
Noninterest-earning assets:
Cash and due from banks 15,797 15,871 13,935
Other nonearning assets 32,515 29,594 28,970
Allowance for loan losses (7,420) (6,715) (5,692)
-------- -------- --------
Total noninterest-
earning assets 40,892 38,750 37,213
-------- -------- --------
Total assets $693,197 $667,561 $590,193
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $110,648 1,858 1.68% $102,393 2,203 2.15% $ 88,340 2,873 3.25%
Savings and Money Market 48,050 386 .80 42,264 522 1.23 38,379 724 1.89
Time deposits 289,399 10,078 3.48 287,032 12,404 4.32 264,269 15,684 5.93
Repurchase agreements 23,396 204 .87 23,090 361 1.56 19,893 627 3.15
Other borrowed money 100,590 5,119 5.09 98,938 5,320 5.38 74,525 4,327 5.81
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 572,083 17,645 3.08% 553,717 20,810 3.76% 485,406 24,235 4.99%
Noninterest-bearing liabilities:
Demand deposit accounts 61,579 57,824 50,267
Other liabilities 7,461 8,145 9,191
-------- -------- ------
Total noninterest-
bearing liabilities 69,040 65,969 59,458
Shareholders' equity 52,074 47,875 45,329
-------- -------- --------
Total liabilities and
shareholders' equity $693,197 $667,561 $590,193
======== ======== ========
Net interest earnings $27,831 $27,284 $23,680
======= ======= =======
Net interest earnings as a percent
of interest-earning assets 4.27% 4.34% 4.28%
----- ----- -----
Net interest rate spread 3.89% 3.89% 3.67%
----- ----- -----
Average interest-bearing liabilities
to average earning assets 87.70% 88.06% 87.78%
===== ===== =====
Fully taxable equivalent yields are calculated assuming a 34% tax rate, net of
nondeductible interest expense. Average balances are computed on an average
daily basis. The average balance for available-for-sale securities includes the
market value adjustment. However, the calculated yield is based on the
securities' amortized cost. Average loan balances include nonaccruing loans.
Loan income includes cash received on nonaccruing loans.
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II
2003 2002
----------------------------- ----------------------------
(dollars in thousands) Increase (Decrease) Increase (Decrease)
From Previous Year Due to From Previous Year Due to
----------------------------- ----------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
------ ---------- ----- ------ ---------- -----
INTEREST INCOME
- ---------------
Interest-bearing balances
with banks $ (3) $ (4) $ (7) $ 12 $ (29) $ (17)
Federal funds sold (111) (63) (174) 155 (203) (48)
Securities:
Taxable 504 (399) 105 277 (628) (351)
Tax exempt (49) (6) (55) (32) 4 (28)
Loans 1,723 (4,210) (2,487) 5,514 (4,891) 623
------- ------- ------- ------- ------- -------
Total interest income 2,064 (4,682) (2,618) 5,926 (5,747) 179
INTEREST EXPENSE
- ----------------
NOW accounts 167 (512) (345) 407 (1,076) (669)
Savings and Money Market 64 (200) (136) 68 (270) (202)
Time deposits 101 (2,427) (2,326) 1,263 (4,543) (3,280)
Repurchase agreements 5 (162) (157) 88 (354) (266)
Other borrowed money 88 (289) (201) 1,332 (340) 992
------- ------- ------- ------- ------- -------
Total interest expense 425 (3,590) (3,165) 3,158 (6,583) (3,425)
------- ------- ------- ------- ------- -------
Net interest earnings $ 1,639 $(1,092) $ 547 $ 2,768 $ 836 $ 3,604
======= ======= ======= ======= ======= =======
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each. Fully taxable equivalent yield assumes a 34% tax
rate, net of related nondeductible interest expense.
SECURITIES
Table III
MATURING
---------------------------------------------------------------------------
As of December 31, 2003 Within After One but After Five but
(dollars in thousands) One Year Within Five Years Within Ten Years After Ten Years
-------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
Obligations of U.S. Government
agency securities $15,621 4.84% $22,164 4.62%
Obligations of states and
political subdivisions 1,645 7.55% 2,557 6.51% $ 6,311 6.87% $2,211 7.40%
Mortgage-backed securities 20,131 3.55% 13,344 3.82%
------- ---- ------- ---- ------- ---- ------ ----
Total debt securiities $17,266 5.10% $44,852 4.24% $19,655 4.80% $2,211 7.40%
======= ==== ======= ==== ======= ==== ====== ====
Tax equivalent adjustments have been made in calculating yields on obligations
of states and political subdivisions using a 34% rate. Weighted average yields
are calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security. Mortgage-backed securities, which have
prepayment provisions, are assigned to a maturity based on estimated average
lives. Securities are shown at their carrying values which include the market
value adustments for available-for-sale securities.
DEPOSITS
Table IV as of December 31
(dollars in thousands)
2003 2002 2001
---- ---- ----
Interest-bearing deposits:
NOW accounts $113,423 $105,130 $ 91,497
Money Market 8,917 10,255 10,286
Savings accounts 37,686 33,704 30,650
IRA accounts 38,427 38,295 36,634
Certificates of Deposit 246,821 251,023 230,059
-------- -------- --------
445,274 438,407 399,126
Noninterest-bearing deposits:
Demand deposits 62,235 58,997 56,735
-------- -------- --------
Total deposits $507,509 $497,404 $455,861
======== ======== ========
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Table V Years Ended December 31
(dollars in thousands) 2003 2002 2001 2000 1999
- ---------------------- ---- ---- ---- ---- ----
Commercial loans $4,363 $2,780 $1,831 $1,546 $1,278
Percentage of loans to total loans 38.58% 36.94% 34.21% 31.36% 29.33%
Real estate loans 750 1,091 874 609 270
Percentage of loans to total loans 37.94% 40.07% 44.47% 46.78% 49.04%
Consumer loans 1,726 1,981 1,935 1,629 1,444
Percentage of loans to total loans 23.48% 22.99% 21.32% 21.86% 21.63%
Unallocated 754 1,217 1,611 1,601 2,063
------- ------- ------- ------- -------
Allowance for Loan Losses $7,593 $7,069 $6,251 $5,385 $5,055
======= ======= ======= ======= =======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Ratio of net charge-offs
to average loans .68% .86% .56% .36% .40%
======= ======= ======= ======= =======
The above allocation is based on estimates and subjective judgments and is not
necessarily indicative of the specific amounts or loan categories in which
losses may ultimately occur.
SUMMARY OF NONPERFORMING AND PAST DUE LOANS
Table VI
(dollars in thousands) 2003 2002 2001 2000 1999
- ---------------------- ---- ---- ---- ---- ----
Impaired loans $1,988 $4,780 $2,621 $1,233 $1,413
Past due-90 days or more and
still accruing 659 1,491 3,013 3,691 3,711
Nonaccrual 2,655 6,569 3,297 2,948 2,953
Accruing loans past due 90
days or more to total loans .12% .27% .59% .82% .90%
Nonaccrual loans as a % of
total loans .46% 1.17% .65% .66% .72%
Impaired loans as a % of total loans .35% .85% .52% .28% .34%
Allowance for loans losses as a
% of total loans 1.32% 1.26% 1.23% 1.20% 1.23%
Management believes that the impaired loan disclosures are comparable to the
nonperforming loan disclosures except that the impaired loan disclosures do not
include single family residential or consumer loans which are analyzed in the
aggregate for loan impairment purposes.
During 2003, the Company recognized $76 of interest income on impaired loans.
Individual loans not included above that management feels have loss potential
total approximately $475. The Company has no assets which are considered to be
troubled debt restructings.
Management formally considers placing a loan on nonaccrual status when
collection of principal or interest has become doubtful.Furthermore, a loan
should not be returned to the accrual status unless either all delinquent
principal or interest has been brought current or the loan becomes well secured
and is in the process of collection.
MATURITY AND REPRICING DATA OF LOANS
Table VII
As of December 31, 2003 Maturing/Repricing
(dollars in thousands)
Within After One but
One Year Within Five Years After Five Years Total
-------- ----------------- ---------------- -----
Commercial loans and other $157,567 $ 35,837 $ 27,944 $221,348
Real estate loans 90,065 17,514 110,057 217,636
Consumer loans 24,450 83,321 26,949 134,720
-------- -------- -------- --------
Total loans $272,082 $136,672 $164,950 $573,704
======== ======== ======== ========
Loans maturing or repricing after one year with:
Variable interest rates $ 42,466
Fixed interest rates 259,156
--------
Total $301,622
========
The following table presents the Company's estimated net interest income
sensitivity:
INTEREST RATE SENSITIVITY
Table VIII
Change in 12/31/03 12/31/02
Interest Rates % Change in % Change in
in Basis Points Net Interest Income Net Interest Income
- --------------- ------------------- -------------------
+300 +.09% (1.75%)
+200 (.14%) (1.52%)
+100 (.56%) (.92%)
-100 +2.04% +2.56%
CONTRACTUAL OBLIGATIONS
Table IX
The following table presents, as of December 31, 2003, significant fixed and
determinable contractual obligations to third parties by payment date. Further
discussion of the nature of each obligation is included in the referenced note
to the consolidated financial statements.
Payments Due In
(dollars in thousands)
Note One Year One to Three to Over
Reference or Less Three Years Five Years Five Years Total
--------- -------- ----------- ---------- ---------- ----------
Deposits without a stated maturity F $222,261 $222,261
Consumer and brokered time deposits F 155,247 $ 99,940 $ 27,723 $ 2,338 285,248
Repurchase agreements G 24,018 24,018
Other borrowed funds H 45,062 36,225 13,073 7,202 101,562
Trust preferred obligations I 13,500 13,500
KEY RATIOS
Table X
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Return on average assets .93% .85% .83% .81% .88%
Return on average equity 12.43% 11.85% 10.80% 10.29% 10.29%
Dividend payout ratio 38.14% 40.79% 55.84% 47.14% 43.73%
Average equity to
average assets 7.51% 7.17% 7.68% 7.86% 8.54%
SUMMARY OF COMMON STOCK DATA
OHIO VALLEY BANC CORP.
Years ended December 31, 2003 and 2002
INFORMATION AS TO STOCK PRICES AND DIVIDENDS: The market for the common stock of
the Company is not highly active and trading has historically been limited. On
February 9, 1996, the Company's common stock was established on NASDAQ
securities market under the symbol "OVBC". Prior to this date a limited market
was created in the first quarter of 1992 through the Ohio Company.
The following table shows bid and ask quotations for the Company's common
stock during 2003 and 2002. The range of market price is compiled from data
provided by the broker based on limited trading. The quotations are inter-dealer
prices, without retail markup, markdown, or commission, and may not represent
actual transactions.
2003 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $20.51 $23.19 $20.61 $23.48
Second Quarter 22.00 23.43 22.45 23.90
Third Quarter 23.00 24.22 23.48 24.74
Fourth Quarter 24.50 27.05 24.75 27.34
2002 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $23.65 $24.00 $23.75 $24.65
Second Quarter 23.60 24.25 23.72 24.50
Third Quarter 21.35 23.60 22.19 24.45
Fourth Quarter 19.75 21.10 20.50 21.40
Dividends per share 2003 2002
- ------------------- ---- ----
First Quarter $.17 $.16
Second Quarter .18 .17
Third Quarter .18 .17
Fourth Quarter .18 .17
Shown above is a table which reflects the dividends paid per share on the
Company's common stock. This disclosure is based on the weighted average number
of shares for each year and does not indicate the amount paid on the actual
shares outstanding at the end of each quarter. As of December 31, 2003 the
number of holders of common stock was 1,995 an increase from 1,877 shareholders
at December 31, 2002.
DIRECTOR & OFFICER LISTING
OVBC Directors
- --------------
James L. Dailey
Jeffrey E. Smith
Robert H. Eastman
W. Lowell Call
Thomas E. Wiseman
Lannes C. Williamson
Steven B. Chapman
Anna P Barnitz
Brent A. Saunders
OVBC Officers
- -------------
Jeffrey E. Smith
James L. Dailey
E. Richard Mahan
Larry E. Miller, II
Katrinka V. Hart
Sue Ann Bostic
Mario P. Liberatore
Cherie A. Barr
Harold A. Howe
Sandra L. Edwards
David L. Shaffer
Scott W. Shockey
Cindy H. Johnston
Paula W. Salisbury
Ohio Valley Bank Directors
- --------------------------
James L. Dailey
Jeffrey E. Smith
Robert H. Eastman
W. Lowell Call
Thomas E. Wiseman
Lannes C. Williamson
Harold A. Howe
Steven B. Chapman
Wendell B. Thomas
Anna P. Barnitz
Barney A. Molnar
Brent A. Saunders
Directors Emeritus
- ------------------
Keith R. Brandeberry
Merrill L. Evans
Art E. Hartley, Sr.
Charles C. Lanham
C. Leon Saunders
Warren F. Sheets
West Virginia Advisory Board
- ----------------------------
Lannes C. Williamson
Anna P. Barnitz
Mario P. Liberatore
Charles C. Lanham
Richard L. Handley
Gregory K. Hartley
Trenton M. Stover
R. Raymond Yauger
John C. Musgrave
Stephen L. Johnson
Barney A. Molnar
Ohio Valley Bank Officers
- -------------------------
Jeffrey E. Smith President & Chief Executive Officer
James L. Dailey Chairman of the Board
E. Richard Mahan Executive Vice President & Secretary
Larry E. Miller, II Executive Vice President & Treasurer
Katrinka V. Hart Executive Vice President & Risk Management Officer
Sue Ann Bostic Senior Vice President, Administrative Services Group
Mario P. Liberatore Senior Vice President, West Virginia Bank Group
Sandra L. Edwards Senior Vice President, Financial Bank Group
David L. Shaffer Senior Vice President, Commercial Bank Group
Patricia L. Davis Vice President, Research & Technical Applications
Richard D. Scott Vice President, Trust
Tom R. Shepherd Vice President, Director of Marketing, Product Management
& Retail Development
Bryan W. Martin Vice President, Facilities & Technical Services
Patrick H. Tackett Vice President, Western Division Branch Administrator
Jennifer L. Osborne Vice President, Retail Lending
Molly K. Tarbett Vice President, Retail Deposits & Loss Prevention Manager
Scott W. Shockey Vice President and Chief Financial Officer
Robert T. Hennesy Assistant VP, Indirect Lending Manager
Philip E. Miller Assistant VP, Region Manager Franklin County
Rick A. Swain Assistant VP, Region Manager Pike County
Judy K. Hall Assistant VP, Training and Educational Development
Melissa P. Mason Assistant VP, Trust Officer
Diana L. Parks Assistant VP, Internal Auditor
Christopher S. Petro Assistant VP and Comptroller
Linda L. Plymale Assistant VP, Transit Officer
Kimberly R. Williams Assistant VP, Systems Officer
Bryan F. Stepp Assistant VP, Business Development
Deborah A. Carhart Assistant VP, Shareholder Relations
Gregory A. Phillips Assistant VP, I-64 Retail Lending Manager
Pamela D. Edwards Assistant VP, Commercial Loan Operations
Marilyn Kearns Assistant VP, Director of Human Resources
Brenda G. Henson Assistant Cashier, Manager Customer Service
Kyla R. Carpenter Assistant Cashier and Marketing Officer
Richard P. Speirs Assistant Cashier, Maintenance Technical Supervisor
Stephanie L. Stover Assistant Cashier, Retail Lending Operations Manager
Marilyn E. Kearns Assistant Cashier, Director of Human Resources
Bryna S. Butler Assistant Cashier for Corporate Communications
Raymond G. Polcyn Assistant Cashier,Retail Lending Manager for Gallia-Meigs
SuperBanks
Angela G. King Assistant Cashier, Regional Deposit Manager I-64
Barbara A. Patrick Assistant Cashier, Regional Deposit Manager-Gallia/Meigs
Christopher L. Preston Assistant Cashier, Milton Office Manager
Cindy H. Johnston Assistant Secretary
Paula W. Salisbury Assistant Secretary
Loan Central Officers
- ---------------------
Jeffrey E. Smith Chairman of the Board
Cherie A. Barr President
Timothy R. Brumfield Secretary & Manager, Gallipolis Office
Renae L. Hughes Manager, Jackson Office
Joseph I. Jones Manager, Waverly Office
T. Joe Wilson Manager, South Point Office
John J. Holtzapfel Manager, Wheelersburg Office
INVESTOR INFORMATION
- --------------------
VITAL STATISTICS
> Record earnings for 11 consecutive years
> Earnings per share for 2003 represented an increase of 13.4% over last year.
> Approximately $707 million in assets
BUSINESS PROFILE
Ohio Valley Banc Corp. commenced operations on October 23, 1992, as a one-bank
holding company with The Ohio Valley Bank Company being the wholly-owned
subsidiary. The Company's headquarters are located at 420 Third Avenue in
Gallipolis, Ohio.
The Ohio Valley Bank Company was organized on September 24, 1872. The Bank is
insured under the Federal Deposit Insurance Act and is chartered under the
banking laws of the State of Ohio. The company currently operates seventeen
offices in Ohio and West Virginia.
In April 1996, the Banc Corp. opened a consumer finance company operating under
the name of Loan Central, Inc. with five offices in Ohio.
Ohio Valley Financial Services, an agency specializing in life insurance, was
formed as a subsidiary of the Corp. in June 2000.
The Company also has minority holdings in ProFinance and a title insurance
agency, BSG Title Services.
FORM 10-K
A copy of the company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, will be forwarded without charge to any stockholder
upon written request to: Ohio Valley Banc Corp., Attention: E. Richard Mahan,
Secretary, P.O. Box 240, Gallipolis, OH 45631. The annual report and proxy
statement are also available on the company's Web portal, www.ovbc.com.
STOCK LISTING
Ohio Valley Banc Corp. stock is traded on The Nasdaq Stock Market under the
symbol OVBC.
HEADQUARTERS
Ohio Valley Banc Corp.
420 Third Avenue
P.O. Box 240
Gallipolis, Ohio 45631
740.446.2631 or 800.468.6682
Web: www.ovbc.com
E-mail: investorrelations@ovbc.com
FINANCIAL HIGHLIGHTS {bar graph}
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
NET INCOME ($000) $ 6,472 $ 5,675 $ 4,895 $ 4,400 $ 4,292
TOTAL ASSETS ($000) $707,327 $696,356 $634,999 $561,658 $522,057
INCOME PER SHARE $ 1.86 $ 1.64 $ 1.41 $ 1.25 $ 1.22
DIVIDENDS PER SHARE $ .71 $ .67 $ .79* $ .59 $ .53
* Reflects extra "Freedom Dividend"