UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
SEPTEMBER 30, 1996
Commission file number: 0-20914
Ohio Valley Banc Corp.
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(Exact name of Registrant as specified in its charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
31-1359191
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(I.R.S. Employer Identification Number)
420 Third Avenue. Gallipolis, Ohio 45631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 446-2631
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of the issuers classes of
commom stock, as of the latest practicable date.
Common stock, $10.00 stated value Outstanding at October 31, 1996
1,305,967 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10-01 of Regulation
S-X is included in this Form 10Q as referenced below:
Consolidated Balance Sheets...................................... 1
Consolidated Statements of Income................................ 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity.......................................... 4
Condensed Consolidated Statements of Cash Flows.................. 5
Notes to the Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 11
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------ -------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 8,542,944 $ 7,605,748
Federal funds sold 1,000,000 3,625,000
------------ ------------
Total cash and cash equivalents 9,542,944 11,230,748
Interest-bearing balances with banks 61,536 50,880
Securities available-for-sale (Note 2) 31,070,561 33,402,258
Securities held-to-maturity (Approximate market
value: $39,164,000 and $49,616,000)(Note 2) 39,174,162 49,350,373
Total loans (Note 3) 249,460,977 216,756,892
Allowance for loan losses (Note 4) (2,776,036) (2,388,639)
------------ ------------
Net loans 246,684,941 214,368,253
Premises and equipment, net 5,637,194 5,577,841
Accrued interest receivable 2,397,715 2,407,319
Other assets 831,440 656,992
------------ ------------
Total assets $335,400,493 $317,044,664
============ ============
LIABILITIES
Noninterest-bearing deposits $ 31,765,627 $ 33,299,593
Interest-bearing deposits 251,588,275 239,069,007
------------ ------------
Total deposits 283,353,902 272,368,600
Securities sold under agreements to repurchase 11,272,071 9,504,350
Other borrowed funds (Note 6) 7,669,362 4,729,201
Accrued liabilities 3,809,785 2,865,035
------------ ------------
Total liabilities 306,105,120 289,467,186
SHAREHOLDERS' EQUITY
Common stock ($10.00 stated value, 5,000,000
shares authorized; 1,305,967 shares issued
and outstanding at September 30, 1996,
1,029,325 shares issued and outstanding
at December 31, 1995) 13,059,670 10,293,250
Surplus 12,308,275 11,838,736
Retained earnings 3,903,293 5,081,704
Net unrealized gains on availalbe-for-sale
securities 24,135 363,788
------------ ------------
Total shareholders' equity 29,295,373 27,577,478
------------ ------------
Total liabilities and
shareholders' equity $335,400,493 $317,044,664
============ ============
See notes to the consolidated financial statements.
1
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Interest income:
Interest and fees on loans $ 5,855,284 $ 5,073,010 $ 16,579,901 $ 14,457,837
Interest and dividends on
investment securities
Taxable 835,236 1,058,723 2,577,512 3,191,513
Nontaxable 154,910 142,653 464,328 362,476
Dividends 38,283 35,007 113,026 100,005
------------ ------------ ------------ ------------
1,028,429 1,236,383 3,154,866 3,653,994
Interest on federal funds sold 8,913 95,947 145,493 301,179
Interest on deposits with banks 711 26,787 2,020 177,250
------------ ------------ ------------ ------------
Interest on investments 1,038,053 1,359,117 3,302,379 4,132,423
------------ ------------ ------------ ------------
Total interest income 6,893,337 6,432,127 19,882,280 18,590,260
Interest expense:
Interest on deposits 2,861,879 3,040,466 8,482,478 8,789,952
Interest on repurchase agreements 79,127 142,292 267,325 482,059
Interest on other borrowed funds 134,024 73,068 282,794 222,034
------------ ------------ ------------ ------------
Total interest expense 3,075,030 3,255,826 9,032,597 9,494,045
------------ ------------ ------------ ------------
Net interest income 3,818,307 3,176,301 10,849,683 9,096,215
Provision for loan losses (Note 4) 238,516 210,000 757,592 419,000
------------ ------------ ------------ ------------
Net interest income after provision 3,579,791 2,966,301 10,092,091 8,677,215
Other income:
Service charges on deposit accounts 204,592 191,307 584,787 549,393
Trust division income 45,257 68,691 166,827 193,153
Other operating income 91,856 80,820 258,066 206,797
------------ ------------ ------------ ------------
Total other income 341,705 340,818 1,009,680 949,343
Other expense:
Salaries and employee benefits 1,581,939 1,355,291 4,490,268 3,906,832
FDIC premiums 500 (14,320) 1,500 282,993
Occupancy expense 115,748 83,860 342,835 257,547
Furniture and equipment expense 167,000 131,428 461,147 388,795
Data processing expense 136,100 91,000 365,955 265,032
Other operating expense 729,369 608,573 2,091,723 1,712,956
------------ ------------ ------------ ------------
Total other expense 2,730,656 2,255,832 7,753,428 6,814,155
------------ ------------ ------------ ------------
(Continued)
2
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Income before federal income taxes $ 1,190,840 $ 1,051,287 $ 3,348,343 $ 2,812,403
Provision for income taxes 350,852 308,952 981,464 842,150
------------ ------------ ------------ ------------
Net income $ 839,988 $ 742,335 $ 2,366,879 $ 1,970,253
============ ============ ============ ============
Earnings per share (Note 1): $ .65 $ .59 $ 1.83 $ 1.57
============ ============ ============ ============
Dividends per share (Note 1): $ .25 $ .24 $ .74 $ .71
============ ============ ============ ============
Weighted average shares
outstanding (Note 1): 1,302,883 1,268,499 1,295,739 1,260,087
See notes to the consolidated financial statements.
3
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Balance at beginning of period $ 28,500,345 $ 25,594,060 $ 27,577,478 $ 24,387,516
Net income 839,988 742,335 2,366,879 1,970,253
Proceeds from issuance of common
stock through the dividend
reinvestment plan 242,932 197,306 656,169 699,641
Cash paid in lieu of fractional
shares in stock split (9,214) (11,216)
Cash dividends (324,744) (303,500) (956,286) (888,720)
Net change in unrealized
appreciation on available-
for-sale securities 36,852 (3,414) (339,653) 69,313
------------ ------------ ------------ ------------
Balance at end of period $ 29,295,373 $ 29,226,787 $ 29,295,373 $ 26,226,787
============ ============ ============ ============
See notes to the consolidated financial statements.
4
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
1996 1995
------------ ------------
Net cash from operating activities $ 4,400,087 $ 3,686,715
Investing activities
Proceeds from maturities of
available-for-sale securities 9,000,000 1,968,491
Purchases of available-for-sale
securities (7,046,953) (2,944,741)
Proceeds from maturities of
held-to-maturity securities 10,706,524 11,618,557
Purchase of held-to-maturity securities (621,175) (11,674,946)
Change in interest-bearing deposits
in other banks (10,656) 4,008,172
Proceeds from sale of student loans 1,435,520
Net increase in loans (33,035,688) (12,630,367)
Purchase of premises and equipment, net (463,797) (449,005)
------------ ------------
Net cash from investing activities (21,471,745) (8,668,319)
Financing activities
Net increase in deposit accounts 10,985,302 8,107,417
Cash dividends (956,286) (888,720)
Cash paid in lieu of fractional shares
in stock split (9,214) (11,216)
Proceeds from issuance of common stock 656,169 699,641
Change in securities sold under
agreements to repurchase 1,767,721 (433,492)
Proceeds from other borrowed funds 45,074,524
Repayment of other borrowed funds (42,134,362) (264,767)
------------ ------------
Net cash from financing activities 15,383,854 7,208,863
------------ ------------
Increase (decrease) in cash and cash
equivalents (1,687,804) (2,227,259)
Cash and cash equivalents at beginning
of period 11,230,748 12,947,047
------------ -------------
Cash and cash equivalents at end of period $ 9,542,944 $ 15,174,306
============ =============
See notes to the consolidated financial statements
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Ohio Valley Banc Corp. and its wholly owned subsidiaries The Ohio Valley
Bank Company and Loan Central, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect
all adjustments of a normal recurring nature which, in the opinion of
Management, are necessary to present fairly the consolidated financial
position of Ohio Valley Banc Corp. at September 30, 1996, and its results of
operations and cash flows for the periods presented. The accompanying
consolidated financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances. The
Annual Report for Ohio Valley Banc Corp. for the year ended December 31,
1995, contains consolidated financial statements and related notes which
should be read in conjunction with the accompanying consolidated financial
statements.
The provision for income taxes is based upon the effective income tax rate
expected to be applicable for the entire year.
For consolidated financial statement classification and cash flow reporting
purposes, cash and cash equivalents include cash on hand,
noninterest-bearing deposits with banks and federal funds sold. For the nine
months ended September 30, 1996 and September 30, 1995, Ohio Valley Banc
Corp. paid interest in the amount of $9,449,762 and $9,027,447,
respectively. For the nine months ended September 30, 1996 and September 30,
1995, Ohio Valley Banc Corp. paid income taxes of $1,000,000 and $772,635,
respectively.
Earnings per share is computed based on the weighted average shares
outstanding during the period. On April 3, 1996, the Board of Directors
declared a 25% stock split to shareholders of record on April 25, 1996. The
stock split was recorded by transferring from retained earnings an amount
equal to the stated value of the shares issued. Earnings and cash dividends
per share amounts have been retroactively adjusted to reflect the effect of
the stock split.
The Company adopted Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights," January 1, 1996, which requires
companies engaging in mortgage banking activities to recognize as separate
assets rights to service mortgage loans for others. The adoption of this
statement had no impact on the Company's consolidated financial statements.
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the investment securities, as presented in the consolidated balance sheet at
September 30, 1996 and December 31, 1995 are as follows:
September 30, 1996
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 28,528,876 $ 254,948 $ 41,433 $ 28,742,391
Marketable equity
securities 2,205,117 176,947 2,328,170
------------ ---------- ---------- ------------
Total securities $ 31,033,993 $ 254,948 $ 218,380 $ 31,070,561
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 25,440,611 $ 82,751 $ 263,680 $ 25,259,682
Obligations of state and
political subdivisions 12,409,904 243,923 47,259 12,606,568
Corporate Obligations 758,834 5,216 764,050
Mortgage-backed securities 564,813 1,399 32,317 533,895
------------ ---------- ---------- ------------
Total securities $ 39,174,162 $ 333,289 $ 343,256 $ 39,164,195
============ ========== ========== ============
December 31, 1995
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 30,471,046 $ 724,714 $ 25,072 $ 31,170,688
Marketable equity
securities 2,380,017 148,447 2,231,570
------------ ---------- ---------- ------------
Total securities $ 32,851,063 $ 724,714 $ 173,519 $ 33,402,258
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 34,935,131 $ 258,698 $ 286,236 $ 34,907,593
Obligations of state and
political subdivisions 12,280,605 317,478 28,265 12,569,818
Corporate Obligations 1,511,996 19,393 389 1,531,000
Mortgage-backed securities 622,641 1,426 16,905 607,162
------------ ---------- ---------- ------------
Total securities $ 49,350,373 $ 596,995 $ 331,795 $ 49,615,573
============ ========== ========== ============
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of debt investment securities at
September 30, 1996, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because certain borrowers may have the
right to call or prepay the debt obligations prior to their contractual
maturities.
Available for Sale Held to Maturity
--------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Debt securities:
Due in one year
or less $ 5,015,395 $ 5,016,875 $ 12,960,793 $ 12,860,304
Due in one to
five years 23,513,481 23,725,516 19,482,908 19,433,105
Due in five to
ten years 6,165,648 6,336,891
Mortgage-backed sec. 564,813 533,895
------------ ------------ ------------ ------------
Total debt
securities $ 28,528,876 $ 28,742,391 $ 39,174,162 $ 39,164,195
============ ============ ============ ============
Gains and losses on the sale of investment securities are determined using the
specific identification method. There were no sales of debt or equity securities
during the first nine months of 1996 or 1995.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
September 30, December 31,
1996 1995
------------ ------------
Real estate loans $112,335,798 $104,398,656
Commercial and industrial loans 60,469,433 44,374,561
Consumer loans 74,609,982 66,783,608
Other loans 2,045,764 1,200,067
------------ ------------
$249,460,977 $216,756,892
============ ============
At September 30, 1996 and December 31, 1995, loans on nonaccrual status were
approximately $1,790,000 and $963,000, respectively. Loans past due more than 90
days and still accruing at September 30, 1996 and December 31, 1995 were
$1,430,000 and $2,395,000, respectively. Other real estate owned at September
30, 1996 totaled $217,570 compared to $202,046 at December 31, 1995.
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the nine months ended
September 30, 1996 and September 30, 1995 is as follows:
1996 1995
------------ ------------
Balance - January 1, $ 2,388,639 $ 2,183,766
Loans charged off:
Real estate 1,250 28,173
Commercial 73,374 181,635
Consumer 336,288 230,202
------------ ------------
Total loans charged off 410,912 440,010
Recoveries of loans:
Real estate 6
Commercial 103 27,715
Consumer 40,614 32,247
------------ -----------
Total recoveries 40,717 59,968
Net loan charge-offs (370,195) (380,042)
Provision charged to operations 757,592 419,000
------------ ------------
Balance - September 30, $ 2,776,036 $ 2,222,724
============ ============
Information regarding impaired loans at September 30, 1996 and September 30,
1995:
1996 1995
------------ ------------
Balance of impaired loans $ 1,599,876 $ 579,423
Less portion for which no allowance for
loan losses is allocated
------------ ------------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 1,599,876 $ 579,423
============ ============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 100,000 $ 100,000
============ ============
Information regarding impaired loans for the periods ended September 30,
1996 and September 30, 1995:
Average investment in impaired
loans for the year $ 1,554,196 $ 636,941
Interest income recognized on impaired
loans including interest income
recognized on a cash basis 9,396 41,752
Interest income recognized on impaired
loans on a cash basis 9,396
(Continued)
9
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the southeastern Ohio
area. Approximately 10.45% of total loans are unsecured at September 30,
1996.
The Corporation is a party to financial instruments with off-balance sheet
risk. These instruments are required in the normal course of business to
meet the financial needs of its customers. The contract or notional amounts
of these instruments are not included in the consolidated financial
statements. At September 30, 1996, the contract or notional amounts of
these instruments, which primarily include commitments to extend credit and
standby letters of credit and financial guarantees, totaled approximately
$28,324,000.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at September 30, 1996 and December 31, 1995 are
primarily comprised of advances from the Federal Home Loan Bank (FHLB).
Pursuant to collateral agreements with the FHLB, advances are secured by
qualifying first mortgage loans. Advances at September 30, 1996 and
December 31, 1995 have original principal balances totaling $8,000,000 and
$6,000,000. Interest expense on FHLB advances for the nine months ending
September 30, 1996 and 1995 was $252,989 and $213,935, respectively
Promissory notes are due at various dates through a final maturity date of
May 29, 2002.
Interest Balance Balance
Maturity Rates at 9/30/96 at 12/31/95
-------- ------- ------------ ------------
1996 5.42 $ 2,000,000
1998 5.55 452,715 $ 464,674
2000 6.00-6.15 1,500,000 1,500,000
2002 5.80-6.10 2,383,652 2,624,947
------------ -------------
Total FHLB borrowings 6,336,367 4,589,621
Promissory notes 4.50-7.10 1,332,995 139,580
------------ -------------
Total $ 7,669,362 $ 4,729,201
============ =============
The following table is a summary of the scheduled principal payments for
these borrowings at September 30, 1996:
1996 1997 1998 1999 2000 Thereafter
---- ---- ---- ---- ---- ----------
FHLB borrowings $2,116,238 $ 362,881 $ 797,305 $ 389,718 $1,913,709 $ 756,516
Promissory notes 447,282 784,532 10,230 15,981 16,780 58,190
(Continued)
10
OHIO VALLEY BANC CORP
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
Valley Banc Corp. at September 30, 1996, compared to December 31, 1995, and the
consolidated results of operations for the year-to-date and quarterly periods
ending September 30, 1996, compared to the same periods in 1995. The purpose of
this discussion is to provide the reader a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes included in
this Form 10-Q.
The Registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities which
would have such effect if implemented.
FINANCIAL CONDITION
Ohio Valley Banc Corp.'s consolidated total assets grew by $18,356,000 or 5.79%
for the first nine months of 1996 to reach $335,400,000. During that time, the
Bank experienced an increase in loans of $32,704,000 and a decrease in
investment securities of $12,508,000. In addition, total deposits are up
$10,985,000 and other borrowed funds are up $2,940,000. These changes represent
a strategy employed by management to restructure its balance sheet mix to
achieve higher performance. Maturing investment securities were used to fund
loans where higher yields were recognized and an added benefit of using
investments to fund loans was that management did not have to be as aggressive
on pricing deposits. The end result was a higher yield on earning assets and a
lower cost of funds.
For the first nine months of 1996, management generated a 15.09% increase in
total loan balances. The largest contributor to the growth in loans was
commercial loans which grew $16,095,000 or 36.27% from December 31, 1995 to
September 30, 1996. For the same time period, mortgage loans and consumer loans
increased $7,937,000 and $7,826,000, respectively. At September 30, 1996, the
ratio of loans to deposits was 88.04% compared to 79.58% at December 31, 1995.
The increase in this ratio was due to management utilizing matured investment
securities to partially fund loans as loans grew faster than deposits. Loans
past due more than 90 days plus loans placed on nonaccrual status were
approximately $3,220,000 or 1.29% of outstanding balances at September 30, 1996
compared to $3,358,000 or 1.55% of outstanding balances at the end of 1995. For
the first nine months of 1996, management provided an additional $339,000 to the
allowance for loan losses compared to the provision expense for the same period
in 1995. As a result of the Company's continued loan growth and introduction of
Loan Central, Inc., a finance company which emphasizes consumer loans,
management expects the provision for loan losses to remain at its current level
adjusted to reflect charges to the allowance for any account carrying a specific
allocation.
11
Total investment securities declined 15.12% from December 31, 1995. The decrease
in investments was due to the reinvestment of maturities and calls into loans
where higher yields were recognized. U.S. Government agencies and U.S. Treasury
notes declined $9,495,000 and $2,428,000 from December 31, 1995. The fair market
value of the investment portfolio was more than the amortized cost by $27,000 at
September 30, 1996 compared to an $816,000 unrealized gain at December 31, 1995.
The decrease in market value was due to an increase in market rates from
December 31, 1995 levels. Within the Company's investment portfolio are
securities which are considered to be structured notes. Structured notes are
debt securities other than mortgage-backed securities whose cash flow
characteristics depend on one or more indices and/or that have embedded forward,
put or call options. The investment portfolio contains $14,000,000 of structured
notes which represents 19.93% of the entire portfolio. The fair market value of
these securities was less than the amortized cost by $239,000 or 1.71%.
Management has the ability and intends to hold these securities to maturity.
While the Company has had no sales of investment securities during 1996, it
anticipates the sale of its mutual funds in the fourth quarter.
Total deposits at September 30, 1996, of $283,354,000 represents an increase of
$10,985,000 or 4.03% from December 31, 1995. Time deposits accounted for the
growth by increasing $15,987,000. The majority of the growth in time deposits
occurred during the third quarter as management moved back to funding loans with
deposits. Savings and interest-bearing demand deposits are down $3,468,000.
Other borrowed funds are primarily advances from the Federal Home Loan Bank
(FHLB), which are used to fund loan growth and management has matched the FHLB
advance repayment terms with loans that have similar repayments. The increase in
promissory notes are a result of Loan Central utilizing this type of debt to
fund loan growth.
Total shareholders' equity at September 30, 1996 of $29,295,000 was 6.23%
greater than the balance of $27,577,000 on December 31, 1995. Contributing to
this increase was year-to-date income of $2,367,000 and proceeds from the
issuance of common stock through the dividend reinvestment plan of $656,000 less
cash dividends paid of $956,000, or $.74 per share (adjusted for stock split).
The cash dividend represents 40.40% of the year-to-date income; although the
Dividend Reinvestment Plan effectively reduces the payout ratio to 12.68%.
Management's decision to effect a five for four stock split was generated by a
desire to make the Company's common stock more accessible to the smaller
investor.
12
RESULTS OF OPERATIONS
Ohio Valley Banc Corp.'s net income was $840,000 for the third quarter and
$2,367,000 for the first nine months of 1996, up 13.15% and 20.13%,
respectively, compared to $742,000 and $1,970,000 for the same periods in 1995.
Comparing the first nine months of 1996 to the first nine months of 1995, return
on average assets was .98% compared to .82% and return on average equity was
11.19% compared to 10.45%. The Company's net income per share for the third
quarter was $.65, a 10.17% increase over 1995's $.59 and $1.83 for the first
nine months, up 16.56% over 1995's $1.57, adjusted for the five for four stock
split. Contributing to the gain in net income over September 30, 1995's
performance was net interest income which exceeded the year-to-date and third
quarter of last year by $1,753,000 and $642,000. Total interest income was up
$1,292,000 and total interest expense was down $461,000 for the first nine
months of 1996 compared to the same period in 1995. Due to the change in balance
sheet mix as discussed earlier, the Company had an increase in the spread
between earning assets and interest-bearing liabilities. Management does not
expect this trend to the interest margin to continue indefinitely. The Bank's
adjusted cumulative gap reflects a modest asset sensitive position of 1.53% in
the time frame of less than one year. This gap position is well within the
Bank's Asset and Liability Policy of plus or minus 15%. As a result, the Company
does not expect a large change in net interest income due to an increase or
decrease in interest rates. See the gap table on pages 15 and 16 for more
detailed information on asset and liability ratios.
Other income increased $60,000 and $1,000 over the year-to-date and third
quarter of 1995. The increase is primarily due to service charges on deposit
accounts. Other expense increased $475,000 or 21.05% over the third quarter of
1995 and increased $939,000 or 13.78% over the first nine months of 1995. The
increase in salary and employee benefits was due to an increase in the number of
full-time equivalent employees from 172 at September 30, 1995 to 190 at
September 30, 1996 and from annual merit increases. The increase in occupancy,
furniture and equipment, and other operating expenses were caused by the expense
associated with the establishment of two offices for Loan Central, Inc. and an
additional building for the Bank used for general office space. The Bank's
insurance rate per $100 of deposits for 1996 was $0 compared to $.23 for the
first half and $.04 for the second half of 1995. As a result, FDIC premiums are
down significantly.
13
CAPITAL RESOURCES
Shareholders' equity totaled $29,295,000 at September 30, 1996, compared to
$27,577,000 at December 31, 1995. All of the capital ratio's exceeded the
regulatory minimum guidelines as identified in the following table:
Company Ratios Regulatory
September 30, 1996 December 31, 1995 Minimum
------------------ ----------------- --------
Tier 1 risk-based capital 12.54% 13.27% 4.00%
Total risk-based capital ratio 13.74% 14.45% 8.00%
Leverage ratio 8.82% 8.54% 4.00-5.00%
Cash dividends paid of $956,000 ($.74 per share) for the first nine months of
1996 represents a 7.60% increase over the cash dividends paid during the same
period in 1995 ($.71 per share). The increase in cash dividends paid is due to
the additional shares outstanding during 1996 which were not outstanding during
1995 and to the increase in the dividend paid per share. During the first nine
months of 1996, the Company issued 18,663 shares under the dividend reinvestment
and stock purchase plan. At September 30, 1996, approximately 55% of the
shareholders were enrolled in the dividend reinvestment plan.
LIQUIDITY
Liquidity relates to the Bank's ability to meet the cash demands and credit
needs of its customers and is provided by the ability to readily convert assets
to cash and raise funds in the market place. Total cash and cash equivalents,
interest-bearing deposits with banks, securities available-for-sale and
held-to-maturity securities maturing within one year of $53,636,000 represented
15.99% of total assets at September 30, 1996. In addition, the Corporation has
established a $16,200,000 line of credit with the Federal Home Loan Bank (FHLB)
in Cincinnati to further enhance the bank's ability to meet liquidity demands.
Beginning January 1, 1997, the Bank's borrowing capacity with the FHLB will
increase due to the exemption of FHLB stock from the limitation of investing no
more than 10% of capital in any one security. The Company experienced a decrease
of $1,688,000 in cash and cash equivalents for the nine months ended September
30, 1996. See the condensed consolidated statement of cash flows on page 5 for
further cash flow information.
CONCENTRATION OF CREDIT RISK
The Company maintains a diversified credit portfolio, with real estate loans
comprising the most significant portion. Credit risk is primarily subject to
loans made to businesses and individuals in southeastern Ohio. Management
believes this risk to be general in nature, as there are no material
concentrations of loans to any industry or consumer group. To the extent
possible, the Company diversifies its loan portfolio to limit credit risk by
avoiding industry concentrations.
14
OHIO VALLEY BANC CORP
RATE SENSITIVITY ANALYSIS
As of September 30, 1996
Non-rate
Sensitive
1 To 3 To 1 To & Over
90 Days 12 Months 5 Years 5 Years Total
------------ ------------ ----------- ------------ ------------
ASSETS
Interest-earning assets:
Federal funds sold $ 1,000,000 $ 1,000,000
Interest-bearing balances
with banks 61,536 61,536
Investment securities 10,873,420 $ 13,159,157 $ 37,718,325 $ 8,493,821 70,244,723
Total loans 64,435,739 87,654,344 47,932,496 49,438,398 249,460,977
------------ ------------ ------------ ------------ ------------
Total interest-
earning assets 76,370,695 100,813,501 85,650,821 57,932,219 320,767,236
Noninterest-earning assets:
Cash and noninterest-bearing
deposits with banks 8,542,944 8,542,944
Bank premises and equipment 5,637,194 5,637,194
Accrued interest receivable 2,397,715 2,397,715
Other assets 831,440 831,440
Less: Allowance for loan losses (2,776,036) (2,776,036)
------------ ------------ ------------ ------------ ------------
Total assets $ 76,370,695 $100,813,501 $ 85,650,821 $ 72,565,476 $335,400,493
============ ============ ============ ============ ============
(Continued)
15
OHIO VALLEY BANC CORP
RATE SENSITIVITY ANALYSIS (Continued)
As of September 30, 1996
Non-rate
Sensitive
1 To 3 To 1 To & Over
90 Days 12 Months 5 Years 5 Years Total
------------ ------------ ------------ ------------ ------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits $ 91,408,633 $ 65,772,203 $ 90,644,439 $ 3,763,000 $251,588,275
Securities sold under agreements
to repurchase 11,272,071 11,272,071
Other borrowed funds 2,534,244 1,050,871 3,608,803 475,444 7,669,362
------------ ------------ ------------ ------------ ------------
Total interest-bearing
liabilities 105,214,948 66,823,074 94,253,242 4,238,444 270,529,708
Noninterest-bearing liabilities:
Noninterest-bearing deposits 31,765,627 31,765,627
Accrued liabilities 3,809,785 3,809,785
Total shareholders' equity 29,295,373 29,295,373
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $105,214,948 $ 66,823,074 $ 94,253,242 $ 69,109,229 $335,400,493
============ ============ ============ ============ ============
Rate sensitive gap $(28,844,253) $ 33,990,427 $ (8,602,421) $ 53,693,775 $ 50,237,528
============ ============ ============ ============ ============
Rate sensitive gap as a
percentage of total assets (8.60)% 10.13 % (2.56)% 16.01 % 14.98 %
============ ============ ============ ============ ============
Cumulative gap $(28,844,253) $ 5,146,174 $ (3,456,247) $ 50,237,528
============ ============ ============ ============
Cumulative gap as a
percentage of total assets (8.60)% 1.53 % (1.03)% 14.98 %
============ ============ ============ ============
16
OHIO VALLEY BANC CORP
Part II - Other Information
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
Ohio Valley Banc Corp. held its Annual Meeting of Shareholders on April 3,1996,
for the purpose of electing directors and increasing the number of authorized
shares of the Company from 2,000,000 to 5,000,000. Shareholders received proxy
materials containing the information required by these items. Three Directors,
James L. Dailey, Morris E. Haskins, and W. Lowell Call, were nominated for
reelection and were reelected. The proposal to increase the number of shares
authorized was approved. The summary of voting of the 1,032,639 shares
outstanding were as follows:
Director Candidate Shares voted: For Against Abstain
- ------------------ --- ------- -------
James L. Dailey 861,616 818
Morris E. Haskins 862,434
W. Lowell Call 862,434
Increase in authorized shares 850,685 7,806 3,943
170,205 shares were not voted.
Exhibits and Reports on Form 8-K
- --------------------------------
A. Exhibits - not applicable
B. Reports - Form 8-K - No reports on Form 8-K were filed by the Registrant
during the first nine months of 1996.
OHIO VALLEY BANC CORP.
------------------------------------
Date November 13, 1996 /S/ James L. Dailey
----------------- ------------------------------------
James L. Dailey
Chairman and Chief Executive Officer
Date November 13, 1996 /S/ Jeffrey E. Smith
----------------- ------------------------------------
Jeffrey E. Smith
President, Chief Operating Officer
and Treasurer
17