MESSAGE FROM MANAGEMENT
- -----------------------
125 years of distinguished service by Ohio Valley Bank and the rapid
growth of Ohio Valley Banc Corp. place us in an advantageous position in today's
business climate. Ohio Valley Bank, which celebrates its 125th anniversary this
year, has earned a solid reputation built upon quality service, loyalty and
trust with our customers. Ohio Valley Banc Corp., in just a few years of
existence, has systematically laid the groundwork for the expansion we are now
enjoying. We will continue to take advantage of this unique blend of both the
new and the old to increase market share and enhance shareholder value.
Your Company has continued its tradition of working both harder and
smarter. For example, last spring, Ohio Valley Banc Corp. launched a consumer
finance company under the name of Loan Central with offices in Gallipolis and
Chesapeake, Ohio. Within nine months, this new company had $2.6 million in new
loans outstanding: a goal not expected to be reached until 1998.
Loan Central has given us the opportunity to compare the same products and
services in both an existing and a new market. Loan Central also has provided a
valuable service for both bank and non-bank loan customers.
More recently, Ohio Valley Bank offices now are open a combined 74 hours
every week. With the opening of our new SuperBank in the downtown Gallipolis
Foodland, we introduced 7 days a week banking to the Gallipolis market. Not only
is the SuperBank open weekends, but it provides longer banking hours weekday
evenings for greater customer convenience. Few retail businesses in the
Gallipolis area are open as many hours as our offices.
The SuperBank, by being in a supermarket, gives us sustaining opportunities
to build relationships with non-customers and to cross sell existing customers.
The SuperBank is an excellent venue to market our consumer friendly product line
and unmatched customer service.
For the first time, Ohio Valley Banc Corp. topped the $3 million dollar
mark in earnings. Net income for 1996 was $3.17 million, an increase of 16
percent compared to a year ago. It took only three years to go from earning $2
million to surpassing the $3 million plateau. Net income per share was $2.44, up
12 percent over 1995. Cash dividends increased $88,867 to $1,282,778, an
increase of 7.44 percent over the prior year. Cash dividends were $.99 per
share, an increase of 4.2 percent compared to last year. Earnings and cash
dividends per share are based on weighted average number of shares outstanding
of 1,299,426 for 1996 and 1,264,390 for 1995.
The major factors in the strengthening of the Banc Corp.'s capital position
in 1996 were record earnings and $894,923 resulting from the purchase of 25,458
new shares by shareholders through the Company's Dividend Reinvestment Plan.
Total shareholders' equity increased by $2,800,523. The book value of your stock
increased $1.63 to $23.04 per share, based on 1,318,262 shares outstanding
December 31, 1996 versus 1,286,656 for December 31, 1995. The NASDAQ quote on
market value of Ohio Valley Banc Corp. stock at year end 1996 was $34.75 bid and
$36.00 ask. The year end 1995 bid was $28.40 and $29.20 ask. All per share
numbers are adjusted for the 25 percent stock split of April 1996. For further
information regarding the financial condition and results of operation of your
Company, we recommend you refer to Management's Discussion and Analysis of
Operations contained in this report.
Page 1
1996 was an exciting year for your Company. It began early in the year when
Ohio Valley Banc Corp.'s stock started trading on NASDAQ. This highly respected
service is attractive to our shareholders because the multiple market makers in
our stock assures shareholders of the best price. Our symbol is OVBC.
During the summer, Ohio Valley Bank made available $2.5 million for low
rate loans to create and retain jobs in the Gallipolis business community. In
conjunction with that initiative, OVB also donated $12,500 toward the
development of a commerce center to unite the economic development organizations
serving Gallia County. The money donated by OVB represented $100 for each year
we have been in business in Gallipolis.
At year's end, two officer promotions were made to help facilitate the
continuing growth of your Company. Sue Ann Bostic was promoted to vice president
of the Banc Corp and senior vice president administrative services group for
the Bank. Bryan W. Martin was named vice president facilities and technical
services for Ohio Valley Bank.
Administrative services becomes the fourth group of Ohio Valley Bank. The
three groups that were created during Phase II as part of our restructuring last
year were commercial, financial and retail. Loan Central operates under the Banc
Corp umbrella.
During 1996 we were saddened with the death of Delsie Burgess, Assistant
Vice President of Trust. Delsie, an employee of the bank for 31 years, will be
sorely missed.
As we mentioned at the beginning, Ohio Valley Bank celebrates its 125th
anniversary this year. Our world has changed dramatically since OVB opened its
doors in 1872, but one thing will never change when you are dealing with the
public, and that is taking care of the customer better than the competition. We
have done that better than anyone else in recent decades, and it is our pledge
to do the same as we near the turn of the century and a new millennium.
GROUP REPORTS
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Working on our strategic planning at Ohio Valley Banc Corp. has become the
single most important part of our daily routine. This is due to greater market
penetration and expansion, and diversity throughout the Company. This requires
us to cover a larger market area and staff these offices with well-trained
employees who can deliver superior service.
1996 was a continuation of the rapid growth in the number of people we
employ. Our payroll has surpassed 200 employees. With the growth in the number
of people working at Ohio Valley Banc Corp. and the added facilities to
maintain, it was important to create a new group for the bank. This new group is
called the administrative services bank group and is under the guidance of new
senior vice president Sue Ann Bostic.
The administrative services bank group is the "behind the scenes" group.
This group's mission is to make the bank as self-reliant as possible. Our goal
is to efficiently handle personnel matters and benefits, provide a safe work
environment, and maintain a comprehensive training program to improve job
skills.
In outlining the goals of this group, Bostic said, "We will keep focused on
maintaining the bank's employee growth as well as the expansion of our
facilities so that Ohio Valley Bank will be in position to adequately serve the
demands and meet the challenges of our ever growing market area."
Page 2
As an organization, we put a tremendous amount of emphasis on updating our
strategic plan. Our senior vice presidents meet weekly with the chairman and
president, and are constantly exploring new ways to manage the growth of your
Company and shape a vision for the future.
Senior vice president and secretary Wendell Thomas illustrates the dramatic
growth of the corporation. "After 40 plus years with Ohio Valley Bank I have
seen it grow from a small bank on the corner of Second Avenue and State Street
with one office and total assets of $3 million, to a financial institution with
offices in 11 different locations over southern Ohio and Point Pleasant, West
Virginia with total assets now exceeding $340 million."
Keeping our position in today's competitive market means keeping our
products and services at a high level. To maintain this level we must listen to
our most valuable resource: the customer.
Our customers always let us know about our mistakes, however, they are also
anxious to tell us their needs and the results of the positive things we do. In
addition to customer comments we decided to check on ourselves. We now have a
secret shopper program that enables us to review the quality of our service and
identify areas that need improvement.
Senior vice president Katrinka Hart explains, "The past few years I have
seen a steady increase in the number of customers who are more educated in
banking products and services. They are searching for quality service at
affordable pricing and convenience."
In December, we began a new journey: nontraditional banking. The OVB
SuperBank located in the downtown Foodland provides full service banking on
weekends and evenings. "One stop shopping and banking has become a necessity in
the busy lifestyle of many of our customers. The customer comments are great and
the business is increasing daily," said Hart.
Another exciting event for customers and shareholders in the Columbus area
has been the opening of our Columbus office located in the Southland Mall on
South High Street. We continue to see more folks with southern Ohio roots
pleased to see OVB in their communities.
As we entered 1996 we also made a commitment to quality service for our
commercial customers. That commitment contributed greatly to our goal of
acquiring new customers and enhancing the relationships with our existing
customers. Our success in serving the needs of our existing customers played a
very important role in the steady stream of new commercial banking customers.
Our commercial loan portfolio increased by over 22 percent in 1996 and all early
indications are that we will be just as busy in 1997.
Enhanced hardware and software systems will allow us to meet the
ever-changing needs of our customers and offer an edge in attracting new
clients.
Page 3
We recently employed a full-time business development officer in the
greater Columbus market. Senior vice president Rich Mahan said, "This should
greatly assist both the retail and commercial bank groups. We are very pleased
with the prospects available to us in the central Ohio market."
The commercial bank group has added a new shareholder relations department
which contributes all of their time to meeting the needs of our shareholders in
stock transfers, dividend reinvestment and other functions as well as making
sure all of the appropriate reporting is completed on time.
During the coming year we anticipate continued strong demand in the
commercial lending area, but will also place great emphasis on our trust
services. With our new systems in place and the new markets we are now serving,
we should be able to serve more trust customers efficiently and profitably to
our bank.
The funds management environment continues to be highly competitive and we
are contributing more time and resources to managing the bank's investments and
monitoring the funds needed for loans. Only as we are able to acquire funds from
our deposit customers or other sources and then lend or invest them more
profitably will we be able to continue to produce returns on investments to our
shareholders.
As we entered 1996 we also made a commitment to maintain the bank's
tradition of trustworthy financial service. Larry Miller, senior vice president,
notes, "The financial services industry is more competitive today than at any
other time in recent history. However, the age old risk/reward axiom which says,
'the greater the risk the greater the potential reward' remains true. An
essential aspect of any successful venture is the proper management of risk
which is something Ohio Valley Bank has been successfully doing for 125 years."
By maintaining the proper balance between the risk/reward trade-off,
management has been able to operate the bank in a safe and sound manner while
generating an acceptable return for our shareholders.
Through the years OVB has garnered the reputation for being able to quickly
deliver the products and services our markets demand. During 1996 the financial
bank group spent a significant amount of time exploring better ways to deliver
products and services to the markets we serve. Our objective was to evaluate our
present delivery system in light of our current needs and the technology
currently available in the marketplace. As a result of our efforts in 1996, Ohio
Valley Bank is poised to modify our current product and delivery system in order
to enhance customer service, provide additional flexibility and further augment
management's knowledge of the markets in which we operate.
Page 4
At the end of the year the Banc Corp's new consumer finance company, Loan
Central, had approximately $2.6 million in loans. Loan Central is fulfilling its
original commitment of allowing Ohio Valley Banc Corp. to meet the total credit
needs of our community.
Loan Central opened for business in April with offices in Gallipolis and
Chesapeake, Ohio. Senior vice president Mike Francis said, "The year proved to
be good for our finance company also. At the end of 1996, Loan Central was
approximately two years ahead of our original projections."
Loan Central's portfolio includes auto, agricultural and personal loans and
mortgages. We are looking at other areas to expand our offices and hope to do
so within the next year.
In closing, Wendell Thomas reflected upon OVB's steady progress. "I believe
this tremendous growth and success can be attributed to a group of loyal
employees who strive to take care of the needs of their customers and offer the
best service possible. For 125 years the name, Ohio Valley Bank, has stood for
quality. Now, it is time to carry this proud tradition into the next century."
DESCRIPTION OF BUSINESS
- -----------------------
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 Company also owns and operates a loan production office in
Point Pleasant, West Virginia.
The Ohio Valley Bank 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 Bank offers a blend of commercial, retail, and agricultural banking
services. Loans of all types, checking, savings and time deposits are offered,
along with such services as safe deposit boxes, issuance of travelers' checks
and trusts.
The Bank presently has seven offices, five of which offer drive-up services.
In April 1996, the Banc Corp. opened a consumer finance company operating
under the name of Loan Central with offices in Gallipolis and Chesapeake, Ohio.
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: Wendell B. Thomas, Secretary
420 Third Avenue
P.O. Box 240
Gallipolis, Ohio 45631
Page 5
FINANCIAL HIGHLIGHTS
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
NET INCOME ($000) $ 3,167 $ 2,728 $ 2,425 $ 2,025 $ 1,551
TOTAL ASSETS ($000) $340,923 $317,045 $313,525 $292,768 $280,861
EARNINGS PER SHARE $ 2.44 $ 2.16 $ 1.98 $ 1.71 $ 1.41
DIVIDENDS PER SHARE $ .99 .95 .90 .86 .88
Page 6
SELECTED FINANCIAL DATA
Years Ended December 31
1996 1995 1994 1993 1992
SUMMARY OF OPERATIONS:
Total interest income $27,090,989 $24,996,499 $21,453,087 $20,635,589 $21,257,397
Total interest expense 12,250,895 12,663,098 10,174,935 10,188,566 12,341,254
Net interest income 14,840,094 12,333,401 11,278,152 10,447,023 8,916,143
Provision for loan losses 1,318,484 614,500 413,000 975,127 559,700
Total other income 1,418,799 1,293,672 1,134,509 1,134,608 1,010,100
Total other expenses 10,468,268 9,150,506 8,509,673 7,625,471 7,231,934
Income before income taxes
and cumulative effect of
change in accounting method 4,472,141 3,862,067 3,489,988 2,981,033 2,134,609
Income taxes 1,305,563 1,134,110 1,064,527 881,010 583,682
Cumulative effect of change
in accounting method 74,552
Net income 3,166,578 2,727,957 2,425,461 2,025,471 1,550,927
PER SHARE DATA(1):
Net income per share $ 2.44 $ 2.16 $ 1.98 $ 1.71 $ 1.41
Cash dividends per share $ .99 $ .95 $ .90 $ .86 $ .88
Weighted average number
of shares outstanding 1,299,426 1,264,390 1,222,464 1,182,340 1,099,485
AVERAGE BALANCE SUMMARY:($000)
Total loans $ 238,366 $ 207,447 $ 195,023 $ 178,208 $ 169,294
Securities (2) 72,244 92,642 90,139 85,154 83,119
Deposits 278,075 268,742 258,114 250,057 246,964
Shareholders' equity 28,568 25,645 23,078 21,060 18,682
Total assets 327,483 320,142 302,720 289,110 275,308
PERIOD END BALANCES:($000)
Total loans $ 254,044 $ 216,757 $ 200,320 $ 185,122 $ 169,411
Securities (2) 66,666 82,804 94,006 90,036 84,123
Deposits 281,825 272,369 263,988 247,190 249,380
Shareholders' equity 30,378 27,577 24,388 22,150 20,436
Total assets 340,923 317,045 313,525 292,768 280,861
KEY RATIOS:
Return on average assets .97% .85% .80% .70% .56%
Return on average equity 11.08% 10.64% 10.51% 9.62% 8.30%
Dividend payout ratio 40.51% 43.77% 45.17% 50.31% 62.23%
Average equity to
average assets 8.72% 8.01% 7.62% 7.28% 6.79%
(1) Restated for stock splits as appropriate.
(2) Securities include interest-bearing balances with banks.
Page 7
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31 1996 1995
----------------- ---- ----
ASSETS
Cash and noninterest-bearing deposits with banks $ 8,687,640 $ 7,605,748
Federal funds sold 3,625,000
------------ ------------
Total cash and cash equivalents 8,687,640 11,230,748
Interest-bearing balances with banks 77,618 50,880
Securities available-for-sale, at estimated fair value (Note B) 30,591,988 33,402,258
Securities held-to-maturity (approximate market value of
$36,253,000 in 1996 and $49,616,000 in 1995)(Note B) 35,996,835 49,350,373
Total Loans (Note C and K) 254,044,106 216,756,892
Less: Allowance for loan losses (Note D) (3,080,494) (2,388,639)
------------ ------------
Net Loans 250,963,612 214,368,253
Premises and equipment (Note E) 6,365,672 5,577,841
Accrued income receivable 2,354,809 2,407,319
Other assets (Note L) 5,884,503 656,992
------------ ------------
Total assets $340,922,677 $317,044,664
============ ============
LIABILITIES
Noninterest-bearing deposits $ 34,091,593 $ 33,299,593
Interest-bearing deposits (Note F) 247,733,542 239,069,007
------------ ------------
Total Deposits 281,825,135 272,368,600
Securities sold under agreements to repurchase (Note G) 8,713,972 9,504,350
Other borrowed funds (Note H) 17,210,117 4,729,201
Accrued liabilities 2,795,452 2,865,035
------------ ------------
Total liabilities 310,544,676 289,467,186
------------ ------------
Commitments and contingencies (Note J)
SHAREHOLDERS' EQUITY
Common stock, $10 stated value: authorized 5,000,000
shares, outstanding 1,318,262 shares in 1996,
1,029,325 shares in 1995 13,182,620 10,293,250
Surplus 12,618,641 11,838,736
Retained earnings 4,376,500 5,081,704
Net unrealized gain on available-for-sale securities 200,240 363,788
------------ ------------
Total shareholders' equity 30,378,001 27,577,478
------------ ------------
Total liabilities and shareholders' equity $340,922,677 $317,044,664
============ ============
See accompanying notes to consolidated financial statements
Page 8
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 1996 1995 1994
------------------------------- ---- ---- ----
INTEREST INCOME:
Interest and fees on loans $22,754,819 $19,586,903 $17,086,887
Interest and dividends on securities
Taxable 3,408,162 4,195,083 3,499,969
Nontaxable 618,441 513,756 407,409
Dividends 148,894 135,744 123,924
----------- ----------- -----------
4,175,497 4,844,583 4,031,302
Interest on federal funds sold 157,856 382,503 207,242
Interest on deposits with banks 2,817 182,510 127,656
----------- ----------- ---------
Total interest income 27,090,989 24,996,499 21,453,087
INTEREST EXPENSE:
Interest on deposits 11,486,624 11,772,313 9,550,992
Interest on repurchase agreements 339,203 596,898 288,077
Interest on other borrowed funds 425,068 293,887 335,866
----------- ----------- -----------
Total interest expense 12,250,895 12,663,098 10,174,935
----------- ----------- -----------
NET INTEREST INCOME 14,840,094 12,333,401 11,278,152
Provision for loan losses (Note D) 1,318,484 614,500 413,000
----------- ----------- -----------
Net interest income after provision
for loan losses 13,521,610 11,718,901 10,865,152
OTHER INCOME:
Service charges on deposit accounts 897,801 768,624 650,435
Trust division income 197,343 252,721 239,421
Other operating income 352,137 272,327 244,653
Net realized loss on sale of available-
for-sale securities (28,482)
----------- ----------- -----------
1,418,799 1,293,672 1,134,509
----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits (Note L) 6,206,186 5,373,398 4,885,585
FDIC premiums 2,000 309,399 568,257
Occupancy expense 453,391 355,441 346,536
Furniture and equipment expense 605,530 523,851 449,390
Corporation franchise tax 381,733 356,384 325,420
Data processing expense 449,379 322,683 308,959
Other operating expenses 2,370,049 1,909,350 1,625,526
----------- ----------- -----------
10,468,268 9,150,506 8,509,673
----------- ----------- -----------
Income before federal income taxes 4,472,141 3,862,067 3,489,988
Federal income taxes (Note I) 1,305,563 1,134,110 1,064,527
----------- ----------- -----------
NET INCOME $ 3,166,578 $ 2,727,957 $ 2,425,461
=========== =========== ===========
Net income per share $ 2.44 $ 2.16 $ 1.98
=========== =========== ===========
Average shares outstanding 1,299,426 1,264,390 1,222,464
=========== =========== ===========
See accompanying notes to consolidated financial statements
Page 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
Net Unrealized
Gain (Loss)
on Available- Total
Common Retained for-Sale Shareholders'
Stock Surplus Earnings Securities Equity
----- ------- -------- ---------- ------
BALANCES AT JANUARY 1, 1994 $ 5,780,360 $10,282,268 $ 6,202,415 $ (114,978) $22,150,065
Net income 2,425,461 2,425,461
Common Stock split, 25% 1,452,550 (1,452,550)
Cash paid in lieu of fractional
shares in stock split (13,376) (13,376)
Common Stock issued, 4,000 shares
(Note L) 40,000 121,500 161,500
Common Stock issued through
dividend reinvestment 201,500 613,889 815,389
Cash dividends, $.90 per share (1,095,656) (1,095,656)
Net change in unrealized loss
on marketable equity securities (55,867) (55,867)
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1994 7,474,410 11,017,657 6,066,294 (170,845) 24,387,516
Net income 2,727,957 2,727,957
Common Stock split, 33-1/3% 2,507,420 (2,507,420)
Cash paid in lieu of fractional
shares in stock split (11,216) (11,216)
Common Stock issued, 5,000 shares
(Note L) 50,000 130,000 180,000
Common Stock issued through
dividend reinvestment 261,420 691,079 952,499
Cash dividends, $.95 per share (1,193,911) (1,193,911)
Net change in unrealized gain
on available-for-sale securities 534,633 534,633
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 10,293,250 11,838,736 5,081,704 363,788 27,577,478
Net income 3,166,578 3,166,578
Common Stock split, 25% 2,579,790 (2,579,790)
Cash paid in lieu of fractional
shares in stock split (9,214) (9,214)
Common Stock issued, 5,500 shares
(Note L) 55,000 139,562 194,562
Common Stock issued through
dividend reinvestment 254,580 640,343 894,923
Cash dividends, $.99 per share (1,282,778) (1,282,778)
Net change in unrealized gain
on available-for-sale securities (163,548) (163,548)
----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996 $13,182,620 $12,618,641 $ 4,376,500 $ 200,240 $30,378,001
=========== =========== =========== =========== ===========
See accompanaying notes to consolidated financial statements
Page 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 1996 1995 1994
------------------------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,166,578 $ 2,727,957 $ 2,425,461
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 551,070 486,056 422,732
Amortization and accretion of securities 50,478 129,885 624,443
Deferred tax benefit (195,984) (7,950) (9,923)
Provision for loan losses 1,318,484 614,500 413,000
Gain from sale of student loans (21,733) (7,310)
Contribution of common stock to ESOP 194,562 180,000 161,500
FHLB stock dividend (105,900) (96,000) (75,800)
Net loss on sale of equity securities 28,482
Change in accrued income receivable 52,510 (87,305) (457,153)
Change in accrued liabilities (69,583) 828,756 528,801
Change in other assets 256,757 (180,558) 58,936
----------- ----------- -----------
Net cash provided by operating activities 5,247,454 4,573,608 4,084,687
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available-for-sale 11,000,000
Purchases of securities available-for-sale (8,708,453)
Proceeds from maturities of securities
held-to-maturity 14,062,866 22,674,970 30,243,604
Purchases of securities held-to-maturity (769,632) (15,792,886) (32,353,899)
Proceeds from sale of equity securities 364,135
Change in interest-bearing deposits in other banks (26,738) 5,008,417 (2,464,295)
Proceeds from sale of student loans 1,440,796 2,194,966
Loans purchased (920,124)
Net increase in loans (37,913,843) (18,265,595) (16,708,168)
Purchases of premises and equipment (1,338,901) (604,249) (381,594)
Purchases of insurance contracts (5,210,000)
----------- ----------- -----------
Net cash used in investing activities (28,540,566) (5,538,547) (20,389,510)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits 9,456,535 8,380,502 16,797,661
Cash dividends (1,282,778) (1,193,911) (1,095,656)
Cash paid in lieu of fractional shares in stock split (9,214) (11,216) (13,376)
Proceeds from issuance of common stock 894,923 952,499 815,389
Change in securities sold under agreements to repurchase (790,378) (8,530,404) 3,953,413
Proceeds from long-term borrowings 4,500,000 50,000
Repayment of long-term borrowings (2,869,084) (348,830) (2,810,969)
Change in other short-term borrowings 10,850,000
----------- ----------- -----------
Net cash used in financing activities 20,750,004 (751,360) 17,696,462
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents (2,543,108) (1,716,299) 1,391,639
Cash and cash equivalents at beginning of year 11,230,748 12,947,047 11,555,408
----------- ----------- -----------
Cash and cash equivalents at end of year $ 8,687,640 $11,230,748 $12,947,047
=========== =========== ===========
CASH PAID DURING THE YEAR FOR:
Interest $12,363,373 $11,802,229 $ 9,634,308
Income taxes 1,360,000 1,172,635 1,070,421
See accompanying notes to consolidated financial statements
Page 11
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) and Loan Central, a
consumer finance company. All significant intercompany balances and transactions
have been eliminated.
Industry Segment Information: The Company is engaged in the business of
commercial and retail banking and trust services, with operations conducted
through its main office and 6 branches located in southeastern Ohio and its loan
production office located in Point Pleasant, West Virginia. Loan Central's
operations are conducted through its 2 offices located in Gallipolis and
Chesapeake, Ohio. These communities are the source of substantially all of the
Company's deposit, loan and trust services. The majority of the Company's income
is derived from commercial and retail business lending activities.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
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 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
marketable equity securities and other securities that management intends to
sell or that would 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.
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.
Revenue Recognition: Interest on loans is accrued over the term of the loans
based upon the principal outstanding. Management reviews loans delinquent 90
days or more to determine if the interest accrual should be discontinued. The
carrying value of impaired loans is periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value. Increases or decreases in carrying
value due to changes in estimates of future payments or the passage of time are
reported as reductions or increases in bad debt expense.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are currently anticipated based on past loss experience, general
economic conditions, information about specific borrower situations, including
their financial position and collateral value, and other factors and estimates
which are subject to change over time. While management may periodically
allocate portions of the allowance for specific problem situations, the entire
allowance is available for any charge-offs that occur. A loan is charged off by
management as a loss when deemed uncollectable, although collection efforts
continue and future recoveries may occur.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." Under these
standards, loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. Adopting these
standards had no material effect on the financial statements in 1995.
Page 12
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, credit card and automobile, home
equity and second mortgage loans. Commercial loans and mortgage loans secured by
other properties are evaluated individually for impairment. When analysis of
borrower operating results and financial condition indicates that underlying
cash flows of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally moved to
nonaccrual status when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectable. This typically occurs when the loan is 120 or more days
past due. The nature of disclosures for impaired loans is considered generally
comparable to prior nonaccrual and renegotiated loans and nonperforming and
past-due asset disclosures.
Concentrations of Credit Risk:
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the southeastern Ohio area.
The following represents the composition of
the loan portfolio at December 31, 1996:
% of Total Loans
----------------
Real estate loans ........................................ 44.73%
Commercial and industrial loans .......................... 24.87%
Consumer loans ........................................... 29.49%
All other loans .......................................... .91%
--------
100.00%
========
Approximately 11.89% 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, 1996, the Bank's primary
correspondent balance was $4,473,871 at the Federal Reserve Bank, Cleveland,
Ohio.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the declining balance and
straight-line methods over the estimated useful lives of the various assets.
Maintenance and repairs are expensed and major improvements are capitalized.
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
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 $217,110 at December 31, 1996 and $202,046 at December 31,
1995. Transfers of loans to other real estate were $15,064, $202,046 and $13,700
in 1996, 1995 and 1994.
Per Share Amounts: Earnings and dividends per share are based on weighted
average shares outstanding. In April 1996, the Board of Directors declared a 25%
stock split and in April 1995, the Board of Directors declared a 33-1/3% stock
split. All earnings and dividends per share disclosures have been restated to
retroactively reflect these stock splits. Weighted average shares outstanding
were 1,299,426 for 1996, 1,264,390 for 1995, and 1,222,464 for 1994.
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.
Reclassifications: The consolidated financial statements for 1995 and 1994 have
been reclassified to conform with the presentation for 1996. Such
reclassification had no effect on the net results of operations.
Page 13
NOTE B - SECURITIES
The amortized cost and estimated fair value of securities as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $28,038,794 $ 432,570 $ 4,176 $28,467,188
Marketable equity securities 2,249,800 125,000 2,124,800
----------- ----------- ----------- -----------
Total securities available-for-sale $30,288,594 $ 432,570 $ 129,176 $30,591,988
=========== =========== =========== ===========
Securities Held-to-Maturity
---------------------------
U.S. Government agency securities $22,441,039 $ 100,444 $ 84,667 $22,456,816
Obligations of states and
political subdivisions 12,252,242 288,961 29,808 12,511,395
Corporate obligations 758,062 7,838 765,900
Mortgage-backed securities 545,492 1,724 28,551 518,665
----------- ----------- ----------- -----------
Total securities held-to-maturity $35,996,835 $ 398,967 $ 143,026 $36,252,776
=========== =========== =========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
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 available-for-sale $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 states 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 held-to-maturity $49,350,373 $ 596,995 $ 331,795 $49,615,573
=========== =========== =========== ===========
To provide additional flexibility to meet customer and asset/liability
needs, the Company reclassified U.S. Treasury securities with an amortized cost
of $30,471,000 from held-to-maturity to available-for-sale. The securities were
transferred on December 22, 1995 as allowed by SFAS No. 115 implementation guide
issued by the Financial Accounting Standards Board. The related unrealized gain
of $462,000 net of tax was recorded as an increase to shareholders' equity.
Securities with a carrying value of approximately $48,307,000 at December
31, 1996 and $53,162,000 at December 31, 1995 were pledged to secure public
deposits and for other purposes as required or permitted by law.
The amortized cost and estimated fair value of debt securities at December
31, 1996, 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 $ 4,486,528 $ 4,515,938 $14,320,839 $14,309,868
Due in one to five years 23,552,266 23,951,250 15,697,804 15,782,682
Due in five to ten years 5,432,700 5,641,561
Mortgage-backed securities 545,492 518,665
----------- ----------- ----------- -----------
Total debt securities $28,038,794 $28,467,188 $35,996,835 $36,252,776
=========== =========== =========== ===========
Gains and losses on the sale of securities are determined using the
specific identification method. Proceeds from the sale of equity securities were
$364,135 with gross losses of $28,482 realized. There were no sales of
securities during 1995 or 1994.
Page 14
NOTE C - LOANS
Loans are comprised of the following at December 31:
1996 1995
---- ----
Real estate loans $113,648,586 $104,398,656
Commercial and industrial loans 63,174,969 44,374,561
Consumer loans 74,908,483 66,783,608
All other loans 2,312,068 1,200,067
------------ ------------
Total Loans $254,044,106 $216,756,892
============ ============
Included in total loans for 1996 are $2,632,000 of loans generated by Loan
Central.
NOTE D - ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses for
years ended December 31:
1996 1995 1994
---- ---- ----
Balance, beginning of year $2,388,639 $2,183,766 $2,013,058
Loans charged-off:
Real estate 2,953 28,173 34,999
Commercial 78,424 181,635
Consumer 672,523 303,859 262,974
---------- ---------- ----------
Total loans charged-off 753,900 513,667 297,973
Recoveries of loans:
Real estate 506 5,090
Commercial 73,477 56,686 3,765
Consumer 53,794 46,848 46,826
---------- ---------- ----------
Total recoveries of loans 127,271 104,040 55,681
Net loan charge-offs (626,629) (409,627) (242,292)
Provision charged to operations 1,318,484 614,500 413,000
---------- ---------- ----------
Balance, end of year $3,080,494 $2,388,639 $2,183,766
========== ========== ==========
Page 15
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
Information regarding impaired loans is as follows:
1996 1995
---- ----
Balance of impaired loans $448,837 $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 $448,837 $579,423
======== ========
Portion of allowance for loan losses allocated
to the impaired loan balance $200,000 $100,000
======== ========
Information regarding impaired loans is as follows:
Average investment in impaired loans for the year $514,103 $636,941
Interest income recognized on impaired loans
including interest income recognized on
a cash basis 55,304
Interest income recognized on impaired loans
a cash basis 18,023
At December 31, 1994, loans on which the accrual of interest has been
discontinued totaled $473,840. During 1994, the Company recognized approximately
$12,800 of interest income collected on nonaccrual loans. Approximately $39,700
of interest income would have been recognized during 1994 if such loans had been
current in accordance with their original terms. The Company has no assets which
are considered to be troubled debt restructurings. Management believes that the
impaired loan disclosures are comparable to the nonperforming loan disclosures.
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment at December 31:
1996 1995
---- ----
Land $ 1,107,485 $ 844,112
Buildings 5,445,073 5,051,037
Furniture and equipment 3,710,041 3,028,549
----------- ----------
10,262,599 8,923,698
Less accumulated depreciation 3,896,927 3,345,857
----------- ----------
Total Premises and Equipment $ 6,365,672 $5,577,841
=========== ==========
Page 16
NOTE E - PREMISES AND EQUIPMENT (continued)
The following is a summary of the future minimum lease payments for facilities
leased by the Company. Rent expense was $54,600 in 1996 and $15,600 in 1995.
1997 $ 66,183
1998 44,208
1999 18,525
2000 8,900
2001 8,158
--------
$145,974
========
NOTE F - DEPOSITS
Following is a summary of interest-bearing deposits at December 31:
1996 1995
---- ----
NOW accounts $ 28,492,691 $ 29,896,626
Savings and Money Market 45,711,811 53,690,852
Time:
IRA accounts 28,043,907 29,209,748
Certificates of Deposit:
In denominations under $100,000 109,329,237 101,091,982
In denominations of $100,000 or more 36,155,896 25,179,799
------------ ------------
Total time deposits 173,529,040 155,481,529
------------ ------------
Total interest-bearing deposits $247,733,542 $239,069,007
============ ============
Following is a summary of total time deposits by remaining maturities at
December 31:
1996 1995
---- ----
Three months or less $ 30,241,600 $ 50,377,196
Three months to twelve months 73,218,780 56,783,205
One year through five years 66,256,052 44,420,367
Over five years 3,812,608 3,900,761
------------ ------------
Totals $173,529,040 $155,481,529
============ ============
Page 17
NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Following is a summary of securities sold under agreements to repurchase at
December 31:
Balance outstanding at period end $ 8,713,972 $ 9,504,350
----------- -----------
Weighted average interest rate at period end 3.50% 2.90%
----------- -----------
Average amount outstanding during the year $ 9,813,240 $17,790,524
----------- -----------
Approximate weighted average interest rate
during the year 3.46% 3.36%
----------- -----------
Maximum amount outstanding as of any month end $12,288,122 $21,748,079
----------- -----------
Securities underlying these agreements at
year-end were as follows:
Carrying value of securities $21,728,240 $21,338,085
----------- -----------
Fair Value $21,804,154 $21,357,877
----------- -----------
NOTE H - OTHER BORROWED FUNDS
Other borrowed funds at December 31, 1996 and 1995 are comprised of
advances from the Federal Home Loan Bank (FHLB) and promissory notes. Pursuant
to collateral agreements with the FHLB, advances are secured by certain
qualifying first mortgage loans which total $23,887,000 at December 31, 1996.
Promissory notes have been issued primarily by Loan Central and are due at
various dates through a final maturity date of May 29, 2002.
Interest Balance Balance
Maturity Rate at 12-31-96 at 12-31-95
- -------- ---- ----------- -----------
1997 6.91% $11,675,000
1998 5.55% 448,616 $ 464,674
2000 6.00%-6.15% 1,500,000 1,500,000
2002 5.80%-6.10% 2,300,788 2,624,947
----------- -----------
Total FHLB borrowings 15,924,404 4,589,621
Promissory notes 4.50%-7.10% 1,285,713 139,580
----------- -----------
Total $17,210,117 $ 4,729,201
=========== ===========
The following table is a summary of the scheduled principal payments for
these borrowings:
1997 1998 1999 2000 2001 Thereafter
---- ---- ---- ---- ---- ----------
FHLB borrowings $12,067,156 $797,305 $389,718 $1,913,709 $439,178 $317,338
Promissory notes $ 1,184,531 $ 10,230 $ 15,981 $ 16,780 $ 52,650 $ 5,541
Page 18
NOTE I - INCOME TAXES
The provision for federal income taxes consists of the following components:
1996 1995 1994
---- ---- ----
Current tax expense $1,501,547 $1,142,060 $1,074,450
Deferred tax expense (benefit) (195,984) (7,950) (9,923)
---------- ---------- ----------
Total federal income taxes $1,305,563 $1,134,110 $1,064,527
========== ========== ==========
The sources of gross deferred tax assets and gross deferred tax liabilities
at December 31:
1996 1995 1994
---- ---- ----
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $ 847,660 $ 637,056 $ 570,279
Other 58,009 6,588 6,588
Items giving rise to deferred tax liabilities:
Investment accretion (72,365) (44,346) (12,976)
Depreciation (67,552) (67,137) (72,048)
FHLB stock dividends (108,827) (80,682) (48,042)
Unrealized gain on securities available-for-sale (103,154) (187,406)
Other (31,595) (22,133) (22,405)
---------- ---------- ----------
Net deferred tax asset $ 522,176 $ 241,940 $ 421,396
========== ========== ==========
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:
1996 1995 1994
---- ---- ----
Statutory tax $1,520,528 $1,313,103 $1,186,596
Effect of nontaxable interest
and dividends (243,036) (197,610) (150,238)
Nondeductible interest expense 34,798 26,256 25,188
Other items (6,727) (7,639) 2,981
---------- ---------- ----------
Total federal income taxes $1,305,563 $1,134,110 $1,064,527
========== ========== ==========
Page 19
NOTE J - 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:
Commitments to extend credit 1996 1995
Fixed rate $ 680,224 $ 429,569
Variable rate 21,820,546 16,153,655
Standby letters of credit 6,285,573 3,536,205
The interest rate on fixed rate commitments ranged from 7.75% to 17.90% at
December 31, 1996.
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 action 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, 1996, was approximately
$2,143,000.
Page 20
NOTE K - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies in which they are
affiliated were loan customers during 1996. A summary of activity on these
borrower relationships with aggregate debt greater than $60,000 is as
follows:
Total loans at January 1, 1996 $3,824,405
New loans 1,336,289
Repayments (645,717)
Other charges (142,392)
----------
Total loans at December 31, 1996 $4,372,585
==========
Other changes include adjustment for loans applicable to one reporting period
that are excludable from the other reporting period.
NOTE L - 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 operations were $115,000, $96,000 and
$87,000 for 1996, 1995 and 1994, respectively.
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 67,499 and 50,882 at December
31, 1996 and 1995. In addition, the Bank made contributions to its ESOP Trust as
follows:
Years ended December 31
1996 1995 1994
---- ---- ----
Number of shares issued 5,500 5,000 4,000
======== ======== ========
Value of stock contributed $194,562 $180,000 $161,500
Cash contributed 35,438 12,000 12,500
-------- -------- --------
Total charged to operations $230,000 $192,000 $174,000
======== ======== ========
In December 1996, life insurance contracts with a cash surrender value of
$5,210,000 were purchased by the Company, the owner the of policies. The purpose
of these contracts was to replace a current group life insurance program for
executive officers and implement a deferred compensation plan for directors and
executive officers in 1996 and to implement a supplemental retirement program in
1997. The cost of providing the benefits to the participants will be offset by
the earnings on the life insurance contracts.
Page 21
NOTE M - 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 Short-term Investments: For 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.
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
carrying value of variable rate loans is a reasonable estimate of fair value.
The fair market value of commitments is not material at December 31, 1996 or
1995.
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.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: For
other borrowed funds, rates currently available to the Bank for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt. 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.
The estimated fair values of the Company's financial instruments at December
31, are as follows:
1996 1995
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and short-term investments $ 8,765,258 $ 8,765,258 $ 11,281,628 $ 11,281,628
Securities 66,588,823 66,844,764 82,752,631 83,017,831
Loans 250,963,612 250,524,506 214,368,253 212,582,526
Accrued interest receivable 2,354,809 2,354,809 2,407,319 2,407,319
Financial liabilities:
Deposits (281,825,135) (283,181,267) (272,368,600) (273,648,877)
Securities sold under agreements
to repurchase (8,713,972) (8,713,972) (9,504,350) (9,504,350)
Other borrowed funds (17,210,117) (17,210,117) (4,729,201) (4,729,201)
Accrued interest payable (2,345,130) (2,345,130) (2,457,006) (2,457,006)
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 judgements 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 judgement and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Page 22
NOTE N - 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. The minimum
requirements are:
Capital to risk-
weighted assets Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year-end, consolidated actual capital levels (in thousands) and minimum
required levels 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
------ ----- ------ ----- ------ -----
1996
Total capital (to risk weighted assets)
Consolidated $33,090 13.8% $19,239 8.0% $24,049 10.0%
Bank $30,868 12.9% $19,120 8.0% $23,900 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $30,083 12.5% $ 9,620 4.0% $14,429 6.0%
Bank $23,880 10.0% $ 9,560 4.0% $14,340 6.0%
Tier 1 capital (to average assets)
Consolidated $30,083 8.9% $13,517 4.0% $16,897 5.0%
Bank $23,880 7.1% $13,418 4.0% $16,773 5.0%
1995
Total capital (to risk weighted assets)
Consolidated $29,460 14.5% $16,315 8.0% $20,394 10.0%
Bank $28,964 14.2% $16,312 8.0% $20,389 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $27,071 13.3% $ 8,157 4.0% $12,236 6.0%
Bank $26,575 13.0% $ 8,156 4.0% $12,234 6.0%
Tier 1 capital (to average assets)
Consolidated $27,071 8.5% $12,780 4.0% $15,976 5.0%
Bank $26,575 8.3% $12,780 4.0% $15,976 5.0%
The Company and Bank at year-end 1996 were categorized as well capitalized.
Dividends paid by the Bank 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 subsidiary bank 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,
1996, approximately $3,188,000 of the Bank's 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.
Page 23
NOTE O - 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 STATEMENT OF CONDITION at December 31:
Assets 1996 1995
---- ----
Cash and cash equivalents $ 50,000 $ 516,556
Investment in subsidiaries 24,402,745 27,058,001
Notes receivable - subsidiaries 4,310,000
Other assets 1,664,601 23,894
----------- -----------
Total assets $30,427,346 $27,598,451
=========== ===========
Liabilities
Other liabilities $ 49,345 $ 20,973
Shareholders' Equity
Common Stock $13,182,620 $10,293,250
Surplus 12,618,641 11,838,736
Retained Earnings 4,376,500 5,081,704
Net unrealized gain on available-for-sale-securities 200,240 363,788
----------- -----------
Total shareholders' equity 30,378,001 27,577,478
----------- -----------
Total liabilities and shareholders' equity $30,427,346 $27,598,451
=========== ===========
CONDENSED STATEMENT OF INCOME
Years ended December 31:
1996 1995 1994
---- ---- ----
Income:
Interest on deposits $ 11,928
Interest on loans 11,458
Dividends from bank subsidiary 6,000,000 $ 325,000
Expenses:
Operating expenses 86,590 $ 66,853 62,456
----------- ----------- -----------
Income before federal income taxes and equity
in undistributed earnings of subsidiaries 5,936,796 (66,853) 262,544
Federal income tax benefit 21,489 23,215 21,235
Equity in undistributed earnings of subsidiaries (2,791,707) 2,771,595 2,141,682
----------- ----------- -----------
Net Income $ 3,166,578 $ 2,727,957 $ 2,425,461
=========== =========== ===========
Page 24
CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31: 1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 3,166,578 $ 2,727,957 $ 2,425,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries 2,791,707 (2,771,595) (2,141,682)
Amortization 11,947 11,947 11,947
Change in other assets 20,366 152,285
Change in other liabilities 458 7,390 (5,380)
----------- ----------- -----------
Net cash provided by operating activities 5,991,056 (24,301) 442,631
----------- ----------- -----------
Cash flows from investing activities:
Purchase of long-term note from subsidiary (4,000,000)
Investments in subsidiaries (300,000)
Change in subsidiary line of credit (310,000)
Change in interest-bearing deposits (1,645,105)
-----------
Net cash used in investing activities (6,255,105)
-----------
Cash flows from financing activities:
Cash dividends paid (1,282,778) (1,193,911) (1,095,656)
Cash paid in lieu of fractional shares in stock split (9,214) (11,216) (13,376)
Proceeds from issuance of common stock 1,089,485 1,132,499 976,889
----------- ----------- -----------
Net cash used in financing activities (202,507) (72,628) (132,143)
----------- ----------- -----------
Cash and cash equivalents:
Change in cash and cash equivalents (466,556) (96,929) 310,488
Cash and cash equivalents at beginning of year 516,556 613,485 302,997
----------- ----------- -----------
Cash and cash equivalents at end of year $ 50,000 $ 516,556 $ 613,485
=========== =========== ===========
Page 25
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, 1996 and 1995 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, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
February 6, 1997
Page 26
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters Ended
1996 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Total interest income $6,373,113 $6,615,830 $6,893,337 $7,208,709
Total interest expense 3,004,901 2,952,666 3,075,030 3,218,298
Net interest income 3,368,212 3,663,164 3,818,307 3,990,411
Provision for loan losses 237,802 281,274 238,516 560,892
Net Income 726,566 800,325 839,988 799,699
Net income per share $.56 $.62 $.65 $.61
1995
Total interest income $5,904,879 $6,253,254 $6,432,127 $6,406,239
Total interest expense 3,001,894 3,236,325 3,255,826 3,169,053
Net interest income 2,902,985 3,016,929 3,176,301 3,237,186
Provision for loan losses 75,000 134,000 210,000 195,500
Net Income 591,197 636,721 742,335 757,704
Net income per share $.47 $.51 $.59 $.59
1994
Total interest income $5,012,515 $5,213,740 $5,462,655 $5,764,177
Total interest expense 2,274,025 2,401,666 2,636,796 2,862,448
Net interest income 2,738,490 2,812,074 2,825,859 2,901,729
Provision for loan losses 75,000 75,000 100,000 163,000
Net Income 576,011 601,544 589,100 658,806
Net income per share $.48 $.49 $.48 $.53
Page 27
OHIO VALLEY BANC CORP.
Years ended December 31, 1996 and 1995
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. 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 1996 and 1995. The range of market price is compiled from data
provided by the broker based on limited trading and have been restated for the
25% stock split in 1996 and the 33-1/3% stock split in 1995. The quotations are
inter-dealer prices, without retail markup, markdown, or commission, and may not
represent actual transactions.
1996 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $28.40 $32.00 $29.20 $36.00
Second Quarter 31.00 33.50 36.00 36.00
Third Quarter 33.50 34.00 36.00 36.00
Fourth Quarter 33.75 34.75 36.00 36.00
1995 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $24.00 $26.40 $24.45 $27.00
Second Quarter 26.40 27.20 27.00 28.00
Third Quarter 27.20 28.00 28.00 28.80
Fourth Quarter 27.60 28.40 28.40 29.20
Dividends per share 1996 1995
- ------------------- ---- ----
First Quarter $.24 $.23
Second Quarter .25 .24
Third Quarter .25 .24
Fourth Quarter .25 .24
Shown above is a table which reflects the dividends paid per share as
restated for the 25% stock split in 1996 and the 33-1/3% stock split in 1995 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, 1996
the number of holders of common stock was 1,144, an increase from 1,042
shareholders at December 31, 1995.
Page 28
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 generally accepted accounting principles 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.
INTRODUCTION
Ohio Valley Banc Corp. (the Company), an Ohio corporation with
headquarters in Gallipolis, commenced operations on October 23, 1992, and has as
its wholly owned subsidiaries, The Ohio Valley Bank Company (the Bank) and Loan
Central, Inc., a consumer finance company. The Bank's management initiated the
formation of the bank holding company to further strengthen the Bank's
independence, as well as enhance management's flexibility in such areas as
raising capital, acquiring other banks or related businesses and moving into
other states. The Bank expanded its operations in December 1996 by introducing a
supermarket branch in our existing market area to further enhance our customer
service through extended hours and convenience. In early 1997, a second branch
will open in Columbus, Ohio which represents a new market for the Bank. Loan
Central, which began operations in April 1996 for the purpose of providing
smaller balance consumer loans to individuals with nontraditional or
nonconforming credit history, has exceeded management's expectations in terms of
loan growth and earnings.
Chartered under the banking laws of the state of Ohio, the Bank
conducts primarily the same business operations as those often identified with a
typical community bank. The Bank's market area is concentrated primarily in
Gallia, Jackson and Pike counties in Ohio. Some additional business originates
from the surrounding Ohio counties of Meigs, Vinton, Scioto, Ross and in 1997
Franklin, as well as from Mason county, West Virginia. Competition for deposits
and loans comes primarily from local banks and savings and loan associations,
although some competition is also experienced from local credit unions,
insurance companies and mutual funds.
RESULTS OF OPERATIONS:
SUMMARY
Ohio Valley Banc Corp's financial results for 1996 represent continued
success for shareholders, management and employees. Net income increased 16.1%
or $439,000 from 1995's performance of $2,728,000 which was up 12.5% from 1994.
Due to the enhanced earnings, the Company's earnings per share increased $.28 a
share to $2.44 per share, a 13.0% gain. To accompany the growth in earnings, the
Company grew to $340,923,000 in assets. Total assets are up $23,878,000 or 7.5%
from 1995.
Return on average assets (ROA) and return on average equity (ROE) are
industry measures of how effectively management utilized the Company's assets
and shareholders' investment to produce net income. Management has consistently
been able to improve upon these measures through proper balance sheet
management. ROA for 1996 increased to .97% from .85% in 1995 and .80% in 1994.
Similarly, ROE has increased to 11.08% for 1996 compared to 10.64% for 1995 and
10.51% for 1994. Associated with the enhanced performance of Ohio Valley Banc
Corp was the gain in market value in your stock. At December 31, 1996, the
market value was $35.375, up 22.8% from $28.80 at December 31, 1995, adjusted
for the stock split in April 1996. These financial results represent improved
efficiency and your Company's commitment to higher performance.
Page 29
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 and interest expense on the liabilities used to fund those
assets. 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. 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, 1996. 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) grew
$2,582,000 in 1996, an increase of 20.6% over the $12,562,000 earned in 1995.
Net interest income increased 9.7% in 1995 over 1994. For 1996, the gain in net
interest income was attributable to an increase in total interest income of
$2,170,000 and a decrease in total interest expense of $412,000. Interest income
increased due to the growth in volume of interest-earning assets by contributing
an additional $1,638,000. Accompanying the growth in earning assets was an
enhanced yield on earning assets. The increase in yield contributed $533,000 in
interest income. The decline in total interest expense for 1996 was primarily
related to a decrease in rate on interest-bearing liabilities, which provided a
savings of $707,000. This was partially offset by an increase of $295,000 in
interest expense due to volume. For 1995, net interest income increased
$1,110,000 as a result of total interest income increasing $3,598,000 compared
to interest expense increasing only $2,488,000. The increased yield on earning
assets provided an additional $2,196,000; the growth in earning assets provided
an additional $1,402,000 in interest income. Total interest expense increased as
a result of both an increase in rate on interest-bearing liabilities and
increased volume. The change in rate contributed $1,662,000 in interest expense.
The remaining increase in interest expense of $826,000 was due to growth in
volume of interest-bearing liabilities. The following discussion will further
explain the changes in interest income and interest expense.
During 1996, average interest-earning assets grew by $6,945,000, an
increase of 2.3% over 1995. In 1995, average interest-earning assets grew 5.8%.
Average loans increased $30,919,000 or 14.9% in 1996 and $12,424,000 or 6.4% in
1995. Average loans comprised 76.0% of average interest-earning assets in 1996
compared to 67.7% for 1995 and 67.3% for 1994. The shift in earning asset mix to
loans from securities was the result of a strategy employed by management to
enhance the Company's net interest margin. By reinvesting lower yielding
securities into higher yielding loans, management has increased the earning
capacity of interest-earning assets. With a loan to deposit ratio of
approximately 90% at year-end 1996, management does not expect this trend to
continue in 1997. Securities represented 23.0% of average earning assets for
1996 compared to 29.2% and 30.2% for 1995 and 1994.
Page 30
Average interest-bearing liabilities decreased $1,397,000 or .5%
between 1995 and 1996 and increased $11,646,000 or 4.6% between 1994 and 1995.
The composition of interest-bearing liabilities has continued to shift to time
deposits. Average time deposits represented 62.1% of interest-bearing
liabilities for 1996, up from 58.1% and 53.7% for 1995 and 1994. Average time
deposits grew $9,576,000 or 6.2% from 1995 to 1996 and grew $17,977,000 or 13.3%
from 1994 to 1995. The total average balance of NOW accounts, money markets and
savings deposits decreased $5,381,000 or 6.1% from 1995 to 1996 and decreased
$9,945,000 or 10.2% from 1994 to 1995. These average balance changes demonstrate
the impact interest rate has on maintaining or generating savings type deposits.
Net interest margin provides a measure of net yield on the portfolio of
earning assets and is expressed as the ratio of net interest income to average
earning assets. FTE net interest margin increased significantly to 4.83% in 1996
compared to 4.10% in 1995 and 3.95% in 1994. Contributing to the improved net
interest margin in 1996 was a gain in the net interest spread of 64 basis points
(bps) (a basis point is equivalent to .01%). Earning asset yield rose 51 bps in
1996 from 8.23% to 8.74% due primarily to higher relative balances in loans. In
addition, the yield on loans increased 12 bps. Total funding cost decreased by
13 bps from 4.79% in 1995 to 4.66% in 1996. The decline in the cost of funds was
due to the rate on time deposits and NOW accounts decreasing 32 bps and 44 bps.
The decrease was partially offset by time deposits comprising a larger
percentage of interest-bearing liabilities. Noninterest-bearing funding sources
had a positive impact on the net interest margin of 75 bps in 1996 compared to
66 bps in 1995. The 9 bp increase in the contribution of free funding sources
combined with the 64 bp increase in the net interest spread yielded the 73 bp
increase in the net interest margin. The net interest margin improved from 3.95%
in 1994 to 4.10% in 1995 as a result of noninterest-bearing funding sources
providing an additional 14 bps. Management expects the net interest margin to
stabilize in 1997. The Company's 12 month cumulative adjusted gap of .67% at
December 31, 1996 reflects a neutral position in the time frame of less than one
year. Management does not anticipate a significant change in the net interest
margin due to changes in interest rates during 1997.
OTHER INCOME AND EXPENSE
Other income increased $125,000 or 9.7% from the $1,294,000 recorded in
1995. Other income increased 14.0% from 1994 to 1995. Service charges on deposit
accounts was the primary contributor to the change in total other income.
Contributing to the increases were the growth in the number of accounts and an
increase in the overdraft fee schedule in 1995. Service charges on deposit
accounts totaled $898,000 in 1996 and $769,000 in 1995, up 16.8% and 18.2% over
1995 and 1994. Trust Division income was down $55,000 with the loss of the trust
department's largest customer in the first quarter of 1996.
Total other expense increased $1,318,000 or 14.4% in 1996 and $641,000
or 7.5% in 1995. The most significant expense in this category is salary and
employee benefits. The increase in salary and employee benefits was attributable
to an increase in the number of full-time equivalent employees from 169 at
year-end 1994 to 202 at year-end 1996 and annual merit increases. The increase
in full-time equivalent employees was due to the growth in assets, which require
more people to service and to the growth in operations. From 1994 to 1996,
management staffed a new loan production office, two offices for Loan Central
and two new branches for the Bank. Salaries and employee benefits increased
$833,000 or 15.5% from 1995 to 1996 and increased $488,000 or 10.0% from 1994
and 1995. Associated with the new offices was a general increase in occupancy
expense and furniture and equipment expense. The $127,000 increase in data
processing expense from 1995 was related to the start up and monthly expenses
related to the Company's new credit card program. The Bank's FDIC insurance rate
per $100 of deposits for 1996 was $0 compared to $.23 for the first half of 1995
and $.04 for the second half of 1995. As a result, FDIC premiums are down
significantly.
The provision for loan losses increased to $1,318,000 in 1996 from
$615,000 in 1995 and $413,000 in 1994. The principal reason for this increase
was the continued growth of the loan portfolio and to a lesser extent an
increase in net charge-offs in 1996. Refer to the discussion of the loan
portfolio beginning on page 33 for additional information.
In December 1996, life insurance contracts with a cash surrender value
of $5,210,000 were 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 and implement a deferred compensation plan for directors
and executive officers in 1996 and to implement a supplemental retirement
program in 1997. The cost of providing the benefits to the participants will be
offset by the earnings on the life insurance contracts. Management does not
expect an increase in net noninterest expense with the addition of these plans.
Page 31
FINANCIAL CONDITION:
SECURITIES
The second largest component of earning assets is 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.
During 1996, the security portfolio declined by $16,164,000 or 19.5%
from December 1995. The maturing securities were utilized as a funding source
for loan growth. Even though securities represent a smaller percentage of total
assets, management determined that the current level will provide adequate
liquidity and does not expect the portfolio to decline to same degree as in
1996. The decrease in the portfolio occurred primarily in U.S. Government agency
securities, which declined $12,494,000 followed by a decline in U.S. Treasury
notes of $2,704,000. The Company continues to maintain its holdings in municipal
securities to lower its effective tax rate. With these changes in balances,
total Treasury and agency securities comprise 76.5% of the portfolio. As a
result, the credit risk taken in the securities portfolio is minimal. The
weighted average FTE yield on total debt securities at year-end 1996 was 6.47%
as compared to 5.91% at year-end 1995. The yield increased due to the maturity
of lower yielding securities that occurred throughout 1996. 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. The portfolio was comprised largely of fixed rate issues.
The Company classifies a portion of its securities as available for
sale to provide the flexibility to meet future liquidity needs. At December 31,
1996, all U.S. Treasury notes were classified as available-for-sale with a
market value of $28,467,000. Management classifies acquired Treasury notes and
Collateralized Mortgage Obligations (CMO's) as "Available-for-Sale." Maturing
securities, have historically provided sufficient liquidity such that management
has not sold a debt security in several years.
The variance between the carrying value of securities and the estimated
fair value is expressed as gross unrealized gains and losses. Unrealized gains
and losses are indicative of the potential benefits or risks to the return that
is earned on the portfolio should those variances become recognized. The net
unrealized gain at December 31, 1996, totaled $559,000 which compares to a net
unrealized gain of $816,000 at year-end 1995. The Company does not anticipate
any significant sales in the near future. The portfolio does not contain any
issues which would be classified as high risk mortgage-backed securities.
Within the Company's 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 portfolio
contains $12,500,000 of structured notes which represents 18.8% of total
securities. The structured notes consisted of $8 million of floating index
bonds, $2.5 million of step-up bonds and $2 million of dual index or deleveraged
bonds. During 1996, $5,500,000 of the structured notes either matured or were
called. The remaining structured notes will mature no later than April 1998 with
a majority maturing in 1997. The fair market value of these securities was less
than the carrying value by $80,000 or .64%. These debt securities are issued by
U.S. government agencies and management has the ability and presently intends to
hold these securities to maturity. The Company's investment policy does not
allow any future purchases of structured notes due to the thin trading market
for these securities and their greater susceptibility to changes in market
value.
Page 32
LOANS
The highest yielding and largest component of earning assets is loans.
During 1996, the Company experienced strong loan growth represented by a
$37,287,000 or 17.2% increase over total loans at year-end 1995. The most
significant change in the loan portfolio was in commercial lending with growth
in total outstanding balances from December 31, 1995 of $18,800,000 or 42.4%.
Real estate mortgage lending increased $9,250,000 or 8.9% for 1996 which
compares to growth of 9.5% for 1995. The balance of consumer loans increased
$8,125,000 or 12.2% over 1995. The majority of the consumer loan growth
originated through indirect lending. Indirect loans originate primarily from
automobile dealers in our market area and are subject to the same underwriting
as our regular loans. $2,201,000 of the growth in consumer loans was
attributable to Loan Central and $2,109,000 was related to the Company's new
credit card program, both of which have exceeded management's expectations. The
ratio of average total loans to average earning assets for 1996 was 76.0%
compared to 67.7% and 67.3% at 1995 and 1994. The increase in this ratio was
attributable to the reallocation of securities to loans. Although loans are
generally more risky than other investments, management is comfortable with the
current level of loans based on the increase in the allowance for loan losses
and the Company's well-capitalized status. The period end composition of the
loan portfolio for 1996 vs. 1995 is summarized as follows: Real estate loans,
44.7% vs. 48.2%; commercial loans, 24.9% vs. 20.5%; consumer loans, 29.5% vs.
30.8%; and all other loans, .9% vs. .5%.
Tables V, VI, and VII have been provided to enhance the understanding
of the loan portfolio and the allowance for potential loan losses. The allowance
for loan losses is maintained by management at a level considered adequate to
cover possible losses. Management evaluates the adequacy of the allowance for
loan losses based on several factors including, but not limited to, general
economic conditions, loan portfolio composition, prior loan loss experience, and
management's estimate of future potential 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 at December 31,
1996 was .26% up from .20% at December 31, 1995. The increase in this ratio was
associated with charge-offs in the consumer loan area, which is evident
throughout the banking industry. Net charge-offs in both the real estate and
commercial loan areas were low, which represents the overall quality of these
segments of the loan portfolio. Nonperforming loans, which include impaired
loans, 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. Loans past due more than 90 days plus
loans placed on nonaccrual status were approximately $2,944,000 or 1.16% of
outstanding balances at December 31, 1996 compared to $3,358,000 or 1.55% of
outstanding balances at the end of 1995.
For 1996, management provided an additional $704,000 to the allowance
for loan losses compared to the provision expense for 1995. The increase in
provision expense was associated with the Company's continued loan growth and
increase in net charge-offs. In addition, commercial loans represent a larger
percentage of the loan portfolio. As a percentage of total loans, the allowance
for loan losses at December 31, 1996 was 1.21% versus 1.10% at December 31,
1995. With the decline in nonperforming loans and the increase in the allowance
to total loans, management believes the allowance is adequate to absorb inherent
losses in the portfolio. Management anticipates that it will continue its
provision to the allowance for loan losses at its current level for the
foreseeable future.
In 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires the carrying value of an impaired loan be
determined by calculating the present value of the expected future cash flows
discounted at the loan's effective interest rate, except those loans that are
accounted for at fair value or at the lower of cost or fair value. The adoption
of this pronouncement did not have a significant impact on the Company's
financial statements.
Page 33
DEPOSITS
Interest-earning assets are funded primarily by core deposits. The
accompanying table IV shows the composition of total deposits as of December 31,
1996. Total deposits reached $281,825,000 at year-end 1996 an increase of 3.5%
since year-end 1995. The overall mix of deposits has shifted more to time
deposits from Money Market and savings accounts due to the higher interest rate
paid. Time deposits increased $18,048,000 or 11.6% and the combination of NOW,
money market and savings deposits decreased $9,383,000 or 11.2% from December
31, 1995. By partially funding loans with securities, management did not have to
be as aggressive in growing deposits during 1996. With the addition of new
branches, management expects continued growth in deposits in 1997.
FUNDS BORROWED
In addition to traditional deposits, the Company considers borrowed
funds when evaluating funding sources. Other funds borrowed consist of Federal
Home Loan Bank (FHLB) advances, securities sold under agreements to repurchase,
and promissory notes. FHLB advances are subject to collateral agreements and are
secured by qualifying first mortgage loans. Management has utilized FHLB
advances to fund long-term assets and to fund short-term liquidity needs. At
December 31, 1996, the balance of FHLB advances totaled $15,924,000 compared to
$4,590,000 at December 31, 1995. Management has determined that the use of FHLB
advances is a cost-effective way of generating new money as compared to raising
rates on existing deposit accounts to attract new money. The weighted average
rate on FHLB advances during 1996 equaled 5.84%. Management will continue to
evaluate borrowings from the FHLB as an alternative funding source. Securities
sold under agreements to repurchase declined $790,000 from 1995's level of
$9,504,000. The approximate weighted average interest rate for repurchase
agreements during 1996 was 3.46% which represents a relatively low cost of funds
for the Company. The growth in promissory notes was associated with funding
loans at Loan Central and were issued with terms of one year of less. Promissory
notes are up $1,146,000 from December 31, 1995.
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 $30,378,000 at December 31, 1996, compared to
$27,577,000 at December 31, 1995, which represents growth of 10.2%. All of the
capital ratios exceeded the regulatory minimum guidelines as identified in Note
N "Regulatory Matters".
Cash dividends paid of $1,283,000 ($.99 per share) for 1996 represents
a 7.4% increase over the cash dividends paid during 1995. The increase in cash
dividends paid is due to the additional shares outstanding during 1996 which
were not outstanding during 1995 and an increase in dividends 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 1996, the Company issued 25,458 shares under the dividend
reinvestment and stock purchase plan. At December 31, 1996, approximately 56% of
the shareholders were enrolled in the dividend reinvestment plan.
Page 34
LIQUIDITY AND INTEREST RATE SENSITIVITY
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. This objective is accomplished
through flexible management of the Company's liquidity and interest rate
exposures that result from changes in economic conditions, interest rate levels,
and customer preferences. Table VIII has been prepared to summarize the
Company's exposure to interest rate fluctuations.
The primary function of asset and liability management is to assure
adequate liquidity and to maintain an appropriate balance between interest
sensitive assets and liabilities in order to minimize fluctuations in net
interest income. The Bank's adjusted cumulative gap reflects a balanced position
in the time frame of less than one year. It is management's policy not to
position the balance sheet so as to expose the Company to levels of interest
rate risk which could significantly impair earnings performance or endanger
capital. The .67% cumulative one year gap is well within the Bank's Asset and
Liability Policy of plus or minus 15%. Management has included regular savings
accounts in the one to five year time period to better reflect their interest
sensitivity.
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
$30,592,000 in securities as available for sale at December 31, 1996. In
addition, the Bank has established a $16,226,000 line of credit with the Federal
Home Loan Bank in Cincinnati to further enhance the bank's ability to meet
liquidity demands. At December 31, 1996, the outstanding balance on the line of
credit was $9,675,000. The Bank also has the ability to purchase federal funds
from several of its correspondent banks. 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. See statement of cash flows.
INFLATION
Consolidated financial data included herein has been prepared in
accordance with generally accepted accounting principles (GAAP). Presently, 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 recession 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.
Page 35
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I
December 31
------------------------------------------------------------------------------------
1996 1995 1994
(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 $ 60 $ 3 4.67% $ 3,003 $ 183 6.09% $ 2,743 $ 128 4.67%
with banks
Federal funds sold 2,999 158 5.27 6,575 382 5.81 4,749 207 4.36
Securities:
Taxable 59,883 3,557 5.94 79,696 4,331 5.43 79,727 3,624 4.55
Tax exempt 12,301 889 7.23 9,943 742 7.46 7,669 581 7.58
Loans 238,366 22,788 9.56 207,447 19,587 9.44 195,023 17,087 8.76
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
earning assets 313,609 27,395 8.74% 306,664 25,225 8.23% 289,911 21,627 7.46%
Noninterest-earning assets:
Cash and due from banks 7,355 6,839 6,642
Other nonearning assets 9,168 8,786 8,249
Allowance for loan losses (2,649) (2,147) (2,082)
-------- -------- --------
Total noninterest-
earning assets 13,874 13,478 12,809
Total assets $327,483 $320,142 $302,720
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 32,238 1,091 3.38% $ 31,695 1,211 3.82% $ 30,799 872 2.83%
Savings and Money Market 50,394 1,202 2.38 56,318 1,412 2.51 67,159 1,613 2.40
Time deposits 163,093 9,194 5.64 153,517 9,149 5.96 135,540 7,066 5.21
Repurchase agreements 9,813 339 3.46 17,790 597 3.36 13,410 288 2.15
Other borrowed money 7,281 425 5.84 4,896 294 6.00 5,662 336 5.93
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 262,819 12,251 4.66% 264,216 12,663 4.79% 252,570 10,175 4.03%
Noninterest-bearing liabilities:
Demand deposit accounts 32,350 27,212 24,616
Other liabilities 3,746 3,069 2,456
Shareholders' equity 28,568 25,645 23,078
-------- -------- ------
Total noninterest-
bearing liabilities 64,664 55,926 50,150
Total liabilities and
shareholders' equity $327,483 $320,142 $302,720
======== ======== ========
Net interest earnings $15,144 $12,562 $11,452
======= ======= =======
Net interest earnings as a percent
of interest-earning assets 4.83% 4.10% 3.95%
----- ----- -----
Net interest rate spread 4.08% 3.44% 3.43%
----- ----- -----
Average interest-bearing liabilities
to average earning assets 83.80% 86.16% 87.12%
===== ===== =====
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.
Page 36
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II
1996 1995
----------------------------- ----------------------------
(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 $ (145.4) $ (34.3) $ (179.7) $ 13.0 $ 41.9 $ 54.9
Federal funds sold (191.2) (33.5) (224.7) 93.9 81.4 175.3
Securities:
Taxable (1,149.6) 375.8 (773.8) (1.4) 708.3 706.9
Tax exempt 171.1 (23.9) 147.2 169.8 (8.8) 161.0
Loans 2,953.0 248.5 3,201.5 1,126.7 1,373.3 2,500.0
--------- -------- -------- -------- -------- --------
Total interest income 1,637.9 532.6 2,170.5 1,402.0 2,196.1 3,598.1
INTEREST EXPENSE
- ----------------
NOW accounts 20.4 (141.1) (120.7) 26.1 313.5 339.6
Savings and Money Market (143.6) (67.1) (210.7) (269.4) 68.7 (200.7)
Time deposits 554.2 (508.5) 45.7 1,001.7 1,080.7 2,082.4
Repurchase agreements (275.2) 17.5 (257.7) 113.5 195.3 308.8
Other borrowed money 139.4 (8.2) 131.2 (45.9) 3.9 (42.0)
--------- -------- -------- -------- -------- --------
Total interest expense 295.2 (707.4) (412.2) 826.0 1,662.1 2,488.1
Net interest earnings $ 1,342.7 $1,240.0 $2,582.7 $ 576.0 $ 534.0 $1,110.0
========= ======== ======== ======== ======== ========
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 assuming 34% tax rate,
net of related nondeductible interest expense.
Page 37
SECURITIES
Table III
MATURING
--------------------------------------------------------
As of December 31, 1996 Within After One but After Five but
(dollars in thousands) One Year Within Five Years Within Ten Years
-------- ----------------- ----------------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
U.S. Treasury securities $ 4,516 6.27% $23,951 6.74%
Obligations of U.S. Government
agency securities 12,949 5.31 9,492 6.00
Obligations of states and
political subdivisions 1,122 7.97 5,698 7.01 $5,433 8.11%
Corporate Obligations 250 6.62 508 6.95
Mortgage-backed securities 49 6.70 496 6.08
------- ---- ------- ---- ------ ----
Total debt securiities $18,837 5.72% $39,698 6.61% $5,929 7.94%
======= ==== ======= ==== ====== ====
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)
1996 1995 1994
---- ---- ----
Interest-bearing deposits:
NOW accounts $ 28,493 $ 29,896 $ 28,979
Money Market 13,470 18,524 21,131
Savings accounts 32,242 35,167 40,656
IRA accounts 28,044 29,210 28,352
Certificates of Deposit 145,485 126,272 117,462
-------- -------- --------
247,734 239,069 236,580
Noninterest-bearing deposits:
Demand deposits 34,091 33,300 27,408
-------- -------- --------
Total deposits $281,825 $272,369 $263,988
======== ======== ========
Page 38
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Table V Years Ended December 31
(dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
Commercial loans $ 887 $ 328 $ 628 $ 475 $ 925
Percentage of loans to total loans 25.78% 21.03% 24.63% 25.61% 27.92%
Real estate loans 238 236 136 257 20
Percentage of loans to total loans 44.73% 48.16% 47.58% 44.91% 41.12%
Consumer loans 799 597 544 579 75
Percentage of loans to total loans 29.49% 30.81% 27.79% 29.48% 30.96%
Unallocated 1,156 1,228 876 702 681
------- ------- ------- ------- -------
Allowance for Loan Losses $3,080 $2,389 $2,184 $2,013 $1,701
======= ======= ======= ======= =======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Ratio of net charge-offs
to average loans .26% .20% .12% .37% .33%
======= ======= ======= ======= =======
The above allocation is based on estimates and subjective judgements 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) 1996 1995 1994 1993 1992
- ---------------------- ---- ---- ---- ---- ----
Impaired loans $ 449 $ 579
Past due-90 days or more and
still accruing $2,724 $1,677 $2,344
Nonaccrual 473 394 1,770
Accruing loans past due 90
days or more to total loans 1.36% .91% 1.38%
Nonaccrual loans as a % of
total loans .24% .21% 1.04%
Impaired loans as a % of total loans .18% .27%
Allowance for loans losses as a
% of total loans 1.21% 1.10% 1.09% 1.09% 1.00%
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 1996, the Company did not recognize any interest income on impaired
loans. Loans not included above that management feels have loss potential total
approximately $150,000. The Company has no assets which are considered to be
troubled debt restructurings.
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, 1996 Maturing/Repricing
(dollars in thousands)
Within After One but
One Year Within Five Years After Five Years Total
-------- ----------------- ---------------- -----
Commercial loans and other $ 48,247 $ 4,198 $13,042 $ 65,487
Real estate loans 86,963 2,276 24,410 113,649
Consumer loans 22,377 42,001 10,530 74,908
-------- ------- ------- --------
Total loans $157,587 $48,475 $47,982 $254,044
======== ======= ======= ========
Loans maturing and loans repricing after one year with:
Variable interest rates $ 127
Fixed interest rates 96,330
--------
Total $ 96,457
========
Page 39
RATE SENSITIVITY ANALYSIS
Table VIII
Maturing/Repricing
Non-rate
As of December 31, 1996 Sensitive
1 to 3 To 1 To & Over
90 Days 12 Months 5 Years 5 Years Total
------- --------- ------- ------- -----
ASSETS
- ------
Interest-earning assets:
Interest-bearing balances with banks $ 77,618 $ 77,618
Securities 12,039,206 $ 9,833,078 $ 37,159,040 $ 7,557,499 66,588,823
Total Loans 66,446,026 91,140,675 48,474,694 47,982,711 254,044,106
------------ ------------ ------------ ------------ -----------
Total interest-earning assets 78,562,850 100,973,753 85,633,734 55,540,210 320,710,547
Noninterest-earning assets:
Cash and noninterest-bearing
deposits with banks 8,687,640 6,687,640
Bank premises and equipment 6,365,672 6,365,672
Accrued income receivable 2,354,809 2,354,809
Other assets 5,884,503 5,884,503
Less: Allowance for loan losses (3,080,494) (3,080,494)
------------ ------------ ------------ ------------ ----------
Total assets $ 78,562,850 $100,973,753 $ 85,633,734 $ 75,752,340 $340,922,677
============ ============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
- --------------------
Interest-bearing liabilities:
Interest-bearing deposits $ 81,667,333 $ 73,612,628 $ 88,649,292 $ 3,804,289 $247,733,542
Securities sold under agreements
to repurchase 8,713,972 8,713,972
Other borrowed funds 12,095,314 1,156,373 3,635,551 322,879 17,210,117
------------ ------------ ------------ ------------ ------------
Total interest-bearing liabilities 102,476,619 74,769,001 92,284,843 4,127,168 273,657,631
Noninterest-bearing liabilities:
Noninterest-bearing deposits 34,091,593 34,091,593
Accrued liabilities 2,795,452 2,795,452
Total shareholders' equity 30,378,001 30,378,001
------------ ------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $102,476,619 $ 74,769,001 $ 92,284,843 $ 71,392,214 $340,922,677
============ ============ ============ ============ ============
Rate sensitivity gap $(23,913,769) $ 26,204,752 $ (6,651,109) $ 51,413,042 $ 47,052,916
------------ ------------ ------------ ------------ ------------
Rate sensitivity gap as a percentage
of total assets -7.01% 7.69% -1.95% 15.08% 13.80%
------------ ------------ ------------ ------------ ------------
Cumulative gap $(23,913,769) $ 2,290,983 $ (4,360,126) $ 47,052,916
------------ ------------ ------------ ------------
Cumulative gap as a percentage
of total assets -7.01% .67% -1.28% 13.80%
------------ ------------ ------------ ------------
Gap management is a strategy employed to maximize the net margin over the
interest rate cycle. Interest rate sensitivity varies with different types of
interest- earning assets and interest-bearing liabilities. Management has
classified regular savings in 1 to 5 years to better reflect their interest
sensitivity.
KEY RATIOS
Table IX
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Return on average assets .97% .85% .80% .70% .56%
Return on average equity 11.08% 10.64% 10.51% 9.62% 8.30%
Dividend payout ratio 40.51% 43.77% 45.17% 50.31% 62.23%
Average equity to
average assets 8.72% 8.01% 7.62% 7.28% 6.79%
Page 40
DIRECTORS
OHIO VALLEY BANC CORP
Keith Brandeberry W. Lowell Call
Physician Vice President of Sausage Production
Bob Evans Farms, Inc.
James L. Dailey Robert H. Eastman
Chairman and Chief Executive Officer President
Ohio Valley Banc Corp Ohio Valley Supermarkets, Inc.
Merrill L. Evans Morris E. Haskins
Farmer Retired Bank Executive
President, Evans Enterprises, Inc.
Warren F. Sheets Jeffrey E. Smith
Attorney President and Chief Operating Officer
Ohio Valley Banc Corp
Thomas E. Wiseman
President,
The Wiseman Agency, Inc.
DIRECTORS
OHIO VALLEY BANK COMPANY
Keith R. Brandeberry W. Lowell Call
Member Executive Committee Member Examination and
Chairman Examination and Audit Committee
Audit Committee
James L. Dailey Robert H. Eastman
Chairman and Chairman Marketing and
Chief Executive Officer Long Range Planning Committee
The Ohio Valley Bank Company
Chairman Executive Committee
Merrill L. Evans Lloyd R. Francis
Member Executive Committee Developer
Member Marketing and Long Member Marketing and Long
Range Planning Committee Range Planning Committee
Morris E. Haskins Frank H. Mills, Jr.
Member Executive Committee Farmer
Member Trust Committee Member Examination and
Audit Committee
C. Leon Saunders Warren F. Sheets
Retired Bank Executive Chairman Trust Committee
Member Trust Committee
Jeffrey E. Smith Thomas E. Wiseman
President and Member Executive Committee
Chief Operating Officer Member Trust Committee
The Ohio Valley Bank Company
Member Executive Committee
Member Marketing and
Long Range Planning Committee
Page 41
OFFICERS
OHIO VALLEY BANC CORP
James L. Dailey Jeffrey E. Smith
Chairman and President, Chief Operating Officer
Chief Executive Officer and Treasurer
Wendell B. Thomas Sue Ann Bostic
Vice President and Secretary Vice President
Michael D. Francis Katrinka V. Hart
Vice President Vice President
E. Richard Mahan Larry E. Miller, II
Vice President Vice President
Cindy H. Johnston Paula W. Salisbury
Assistant Secretary Assistant Secretary
OFFICERS
LOAN CENTRAL
Jeffrey E. Smith Michael D. Francis
President Senior Vice President
Nicholas J. Vizy
Secretary
OFFICERS
OHIO VALLEY BANK COMPANY
James L. Dailey Jeffrey E. Smith
Chairman and President and
Chief Executive Officer Chief Operating Officer
Wendell B. Thomas Sue Ann Bostic
Senior Vice President Senior Vice President
and Secretary Administrative Services Group
Member Executive Committee
Katrinka V. Hart E. Richard Mahan
Senior Vice President Senior Vice President
Retail Bank Group Commecial Bank Group
Member Marketing and Long Member Trust Committee
Range Planning Committee
Larry E. Miller, II Patricia L. Davis
Senior Vice President Vice President
Financial Bank Group Management Information
Secretary Examination and Systems
Audit Committee
Bryan W. Martin Richard D. Scott
Vice President Vice President, Trust
Facilities and Technical Secretary Trust Committee
Services
David L. Shaffer Tom R. Shepherd
Vice President Vice President, Marketing
Retail Lending Member Marketing and Long
Range Planning Committee
Nicholas J. Vizy Sandra L. Edwards
Vice President Assistant Vice President
Corporate Counsel and Operations Center Manager
Compliance Officer
Hugh H. Graham, Jr. William J. Gray
Assistant Vice President Assistant Vice President
Deposit Operations Manager Chief Cummunications Officer
Secretary Marketing and Long
Range Planning Committee
Robert T. Hennesy Larry E. Lee
Assistant Vice President Assistant Vice President
Retail Indirect Lending Manager Cash Services and Security
Jennifer L. Osborne Patrick H. Tackett
Assistant Vice President Assistant Vice President
Retail Lending Operations Manager Retail Direct Lending Manager
Page 42
OFFICERS
OHIO VALLEY BANK COMPANY
Phyllis P. Wilcoxon Darren R. Blake
Assistant Vice President for Assistant Cashier
Shareholder Relations Research and Development for MIS
Michael C. Davis Judy K. Hall
Assistant Cashier Assistant Cashier
Loan Officer Manger, Training and
Educational Development
N. Kathryn Massie Billy J. Meadows
Assistant Cashier Assistant Cashier
Telemarketing and Golden Opportunities Program
Quality Control
Linda L. Plymale Scott W. Shockey
Assistant Cashier Assistant Cashier
Operations Center Regulatory Reporting Manager
Timothy V. Stevens Rick A. Swain
Assistant Cashier Assistant Cashier
Retail Development Region Manager Pike County
Molly K. Tarbett Cindy H. Johnston
Assistant Cashier Assistant Secretary
Teller Operations Manager
Paula Salisbury
Assistant Secretary
Page 43