UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
JUNE 30, 1998
Commission file number: 0-20914
Ohio Valley Banc Corp.
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(Exact name of Registrant as specified in its charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
31-1359191
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(I.R.S. Employer Identification Number)
420 Third Avenue. Gallipolis, Ohio 45631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 446-2631
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of the issuers classes of
commom stock, as of the latest practicable date.
Common stock, $1.00 stated value Outstanding at July 31, 1998
2,729,659 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10-01 of Regulation
S-X is included in this Form 10Q as referenced below:
Consolidated Balance Sheets...................................... 1
Consolidated Statements of Income................................ 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity.......................................... 4
Condensed Consolidated Statements of Cash Flows.................. 5
Notes to the Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 11
Part II - Other Information
Other Information and Signatures................................. 16
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
June 30, December 31,
1998 1997
------------ ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 9,542 $ 7,712
Federal funds sold 6,400 94
------------ ------------
Total cash and cash equivalents 15,942 7,806
Interest-bearing balances with banks 141 103
Securities available-for-sale 26,760 32,659
Securities held-to-maturity 43,623 39,419
Total loans 289,340 269,779
Allowance for loan losses (3,538) (3,290)
------------ ------------
Net loans 285,802 266,489
Premises and equipment, net 8,036 7,326
Accrued interest receivable 2,391 2,503
Other assets 8,615 7,790
------------ ------------
Total assets $ 391,310 $ 364,095
============ ============
LIABILITIES
Noninterest-bearing deposits $ 40,028 $ 37,100
Interest-bearing deposits 263,188 256,612
------------ ------------
Total deposits 303,216 293,712
Securities sold under agreements to repurchase 19,646 12,831
Other borrowed funds 27,142 19,479
Accrued liabilities 5,216 3,907
------------ ------------
Total liabilities 355,220 329,929
------------ ------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 5,000,000
shares authorized; 2,729,659 and 1,801,932
shares issued and outstanding at June 30,
1998 and December 31, 1997) 2,730 1,802
Surplus 26,661 25,930
Retained earnings 6,478 6,207
Net unrealized gains on available-for-sale
securities 221 227
------------ ------------
Total shareholders' equity 36,090 34,166
------------ ------------
Total liabilities and
shareholders' equity $ 391,310 $ 364,095
============ ============
See notes to the consolidated financial statements.
1
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Interest income:
Interest and fees on loans $ 7,329 $ 6,439 $14,143 $12,584
Interest on taxable securities 749 799 1,568 1,593
Interest on nontaxable securities 198 154 366 308
Dividends 55 52 109 96
Other interest 103 73 147 86
-------- -------- -------- --------
Total interest income 8,434 7,517 16,333 14,667
Interest expense:
Interest on deposits 3,196 3,154 6,338 6,133
Interest on repurchase agreements
and other borrowed funds 490 311 879 630
-------- -------- -------- --------
Total interest expense 3,686 3,465 7,217 6,763
-------- -------- -------- --------
Net interest income 4,748 4,052 9,116 7,904
Provision for loan losses 535 202 892 502
-------- -------- -------- --------
Net interest income after provision 4,213 3,850 8,224 7,402
Other income:
Service charges on deposit accounts 223 193 424 380
Trust division income 55 49 106 97
Other operating income 228 187 479 368
-------- -------- -------- --------
Total other income 506 429 1,009 845
Other expense:
Salaries and employee benefits 1,879 1,717 3,724 3,399
Occupancy expense 162 128 309 251
Furniture and equipment expense 212 185 405 326
Data processing expense 81 156 192 312
Other operating expense 1,015 831 1,936 1,622
-------- -------- -------- --------
Total other expense 3,349 3,017 6,566 5,910
-------- -------- -------- --------
(Continued)
2
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Income before federal income taxes $ 1,370 $ 1,262 $ 2,667 $ 2,337
Provision for income taxes 382 353 742 643
-------- -------- -------- --------
Net income 988 909 1,925 1,694
-------- -------- -------- --------
Other comprehensive income, net of tax:
Change in unrealized gains on
securities (8) 100 (5) (68)
-------- -------- -------- --------
Comprehensive income $ 980 $ 1,009 $ 1,920 $ 1,626
======== ======== ======== ========
Basic and diluted earnings per share : $ .36 $ .34 $ .71 $ .64
======== ======== ======== ========
See notes to the consolidated financial statements.
3
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Balance at beginning of period $35,093 $30,965 $34,166 $30,378
Net income 988 909 1,925 1,694
Proceeds from issuance of common
stock through the dividend
reinvestment plan 404 296 752 595
Cash paid in lieu of fractional shares (7) (11) (7) (11)
in stock split
Cash dividends (380) (354) (741) (683)
Net change in unrealized
appreciation on available-
for-sale securities (8) 100 (5) (68)
-------- -------- -------- --------
Balance at end of period $36,090 $31,905 $36,090 $31,905
======== ======== ======== ========
See notes to the consolidated financial statements.
4
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share data)
Six months ended June 30,
1998 1997
------------ ------------
Net cash from operating activities $ 3,799 $ 3,900
Investing activities
Proceeds from maturities of
securities available-for-sale 6,000 3,000
Purchases of securities available-
for-sale (4,537)
Proceeds from maturities of
securities held-to-maturity 5,977 4,032
Purchase of securities held-to-maturity (10,255) (2,432)
Change in interest-bearing deposits
in other banks (38) 11
Net increase in loans (20,204) (9,269)
Purchase of premises and equipment, net (1,129) (1,147)
------------ ------------
Net cash from investing activities (19,649) (10,342)
Financing activities
Net change in deposits 9,504 6,369
Cash dividends (741) (683)
Cash paid in lieu of fractional shares
in stock split (7) (11)
Proceeds from issuance of common stock 752 595
Change in securities sold under
agreements to repurchase 6,815 8,054
Proceeds from long-term borrowings 16,164 11,200
Repayment of long-term borrowings (6,383) (5,219)
Change in other short-term borrowings (2,118) (9,101)
------------ ------------
Net cash from financing activities 23,986 11,204
------------ ------------
Change in cash and cash equivalents 8,136 4,762
Cash and cash equivalents at beginning
of year 7,806 8,688
------------ -------------
Cash and cash equivalents at end of year $ 15,942 $ 13,450
============ =============
See notes to the consolidated financial statements
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Ohio
Valley Banc Corp. and its wholly owned subsidiaries The Ohio Valley Bank Company
and Loan Central, Inc. All material intercompany accounts and transactions have
been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of Management,
are necessary to present fairly the consolidated financial position of Ohio
Valley Banc Corp. at June 30, 1998, and its results of operations and cash flows
for the periods presented. The accompanying consolidated financial statements do
not purport to contain all the necessary financial disclosures required by
generally accepted accounting principles that might otherwise be necessary in
the circumstances. The Annual Report for Ohio Valley Banc Corp. for the year
ended December 31, 1997, contains consolidated financial statements and related
notes which should be read in conjunction with the accompanying consolidated
financial statements.
The provision for income taxes is based upon the effective income tax rate
expected to be applicable for the entire year.
For consolidated financial statement classification and cash flow reporting
purposes, cash and cash equivalents include cash on hand, noninterest-bearing
deposits with banks and federal funds sold. For the six months ended June 30,
1998 and June 30, 1997, Ohio Valley Banc Corp. paid interest in the amount of
$7,215 and $6,016, respectively. For the six months ended June 30, 1998 and June
30, 1997, Ohio Valley Banc Corp. paid income taxes of $892 and $790,
respectively.
Earnings per share is computed based on the weighted average shares outstanding
during the period. For the six months ended June 30, 1998 and June 30, 1997,
weighted average shares outstanding were 2,717,868 and 2,652,650, respectively.
On April 8, 1998, the Board of Directors declared a three for two stock split to
shareholders of record on April 20, 1998. The stock split was recorded by
transferring from retained earnings an amount equal to the stated value of the
shares issued. Earnings and cash dividends per share amounts have been
retroactively adjusted to reflect the effect of the stock split.
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income". Under this new accounting standard,
comprehensive income is now reported for all periods. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on securities
available-for-sale.
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the securities, as presented in the consolidated balance sheet at June 30,
1998 and December 31, 1997 are as follows:
June 30, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 21,113 $ 297 $ 21,410
U.S. Government agency
securities 2,024 43 2,067
Marketable equity
securities 3,287 $ 4 3,283
------------ ---------- ---------- ------------
Total securities $ 26,424 $ 340 $ 4 $ 26,760
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 25,224 $ 198 $ 5 $ 25,417
Obligations of state and
political subdivisions 17,465 413 25 17,853
Corporate Obligations 501 1 502
Mortgage-backed securities 433 1 23 411
------------ ---------- ---------- ------------
Total securities $ 43,623 $ 613 $ 53 $ 44,183
============ ========== ========== ============
December 31, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 27,093 $ 353 $ 27,446
U.S. Government agency
securities 2,028 34 2,062
Marketable equity
securities 3,194 $ 43 3,151
------------ ---------- ---------- ------------
Total securities $ 32,315 $ 387 $ 43 $ 32,659
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 24,509 $ 126 $ 13 $ 24,622
Obligations of state and
political subdivisions 13,935 422 14,357
Corporate Obligations 503 3 506
Mortgage-backed securities 472 1 23 450
------------ ---------- ---------- ------------
Total securities $ 39,419 $ 552 $ 36 $ 39,935
============ ========== ========== ============
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at June 30, 1998,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain borrowers may have the right to call or
prepay the debt obligations prior to their contractual maturities.
Available-for-Sale Held-to-Maturity
--------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Debt securities:
Due in one year
or less $ 6,796 $ 6,828 $ 7,141 $ 7,162
Due in one to
five years 16,341 16,649 27,625 27,943
Due in five to
ten years 5,159 5,411
Due after ten years 3,265 3,256
Mortgage-backed sec. 433 411
------------ ------------ ------------ ------------
Total debt
securities $ 23,137 $ 23,477 $ 43,623 $ 44,183
============ ============ ============ ============
Gains and losses on the sale of securities are determined using the specific
identification method. There were no sales of debt or equity securities during
the first six months of 1998 or 1997.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
June 30, December 31,
1998 1997
------------ ------------
Real estate loans $ 127,653 $ 110,247
Commercial and industrial loans 78,698 78,124
Consumer loans 81,059 78,840
Other loans 1,930 2,568
------------ ------------
$ 289,340 $ 269,779
============ ============
At June 30, 1998 and December 31, 1997, loans on nonaccrual status were
approximately $945 and $1,019, respectively. Loans past due more than 90 days
and still accruing at June 30, 1998 and December 31, 1997 were $2,472 and
$3,177, respectively. Other real estate owned at June 30, 1998 and December 31,
1997 were $237 and $142, respectively.
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the six months ended
June 30, 1998 and June 30, 1997 is as follows:
1998 1997
------------ ------------
Balance - January 1, $ 3,290 $ 3,080
Loans charged off:
Real estate 71 3
Commercial 58 102
Consumer 692 433
------------ ------------
Total loans charged off 821 538
Recoveries of loans:
Real estate 38
Commercial 45 15
Consumer 94 87
------------ -----------
Total recoveries 177 102
Net loan charge-offs (644) (436)
Provision charged to operations 892 502
------------ ------------
Balance - June 30, $ 3,538 $ 3,146
============ ============
Information regarding impaired loans at June 30, 1998 and June 30, 1997:
1998 1997
------------ ------------
Balance of impaired loans $ 635 $ 441
------------ ------------
Portion of impaired loan balance for which an
allowance for credit losses is allocated 635 441
------------ ------------
Portion of allowance for loan losses
allocated to the impaired loan balance 200 200
------------ ------------
Information regarding impaired loans for the periods ended June 30, 1998
and June 30, 1997:
Average investment in impaired
loans for the year $ 638 $ 445
Interest income recognized on
impaired loans 0 0
(Continued)
9
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the southeastern Ohio area.
Approximately 8.97% of total loans were unsecured at June 30, 1998 as compared
to 9.55% at December 31, 1997.
The Corporation is a party to financial instruments with off-balance sheet risk.
These instruments are required in the normal course of business to meet the
financial needs of its customers. The contract or notional amounts of these
instruments are not included in the consolidated financial statements. At June
30, 1998, the contract or notional amounts of these instruments, which primarily
include commitments to extend credit and standby letters of credit and financial
guarantees, totaled approximately $41,546 as compared to $39,643 at December 31,
1997.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at June 30, 1998 and December 31, 1997 are comprised of
advances from the Federal Home Loan Bank (FHLB), Federal Reserve Bank Notes
(FRB)and promissory notes. Pursuant to collateral agreements with the FHLB,
advances are secured by certain qualifying first mortgage loans which total
$31,258 at June 30, 1998. Promissory notes have been issued primarily by the
Parent Company and are due at various dates through a final maturity date of May
29, 2002.
Interest Balance Balance
Maturity Rates at 6/30/98 at 12/31/97
-------- ------- ------------ ------------
1998 5.55-6.05 $ 1,423 $ 15,096
1999 5.75 3,164
2000 6.00-6.15 1,500 1,500
2001 5.77-5.82 2,000
2002 5.80-6.10 3,777 1,957
Thereafter 5.13-5.85 8,975
------------ -------------
Total FHLB borrowings 20,839 18,553
Promissory notes 4.50-7.10 1,603 926
FRB notes 5.34 4,700
------------ -------------
Total $ 27,142 $ 19,479
============ =============
The following table is a summary of the scheduled principal payments for these
borrowings at June 30, 1998:
1998 1999 2000 2001 2002 Thereafter
---- ---- ---- ---- ---- ----------
FHLB borrowings $ 1,684 $ 3,719 $ 2,059 $ 2,567 $ 2,429 $ 8,381
Promissory notes $ 937 $ 636 $ 12 $ 13 $ 5
FRB notes $ 4,700
(Continued)
10
OHIO VALLEY BANC CORP
(dollars in thousands, except per share data)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
Valley Banc Corp. at June 30, 1998, compared to December 31, 1997, and the
consolidated results of operations for the year-to-date and quarterly periods
ending June 30, 1998, compared to the same periods in 1997. The purpose of this
discussion is to provide the reader a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes included in
this Form 10-Q.
The Registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities which
would have such effect if implemented.
On April 8, 1998, the Company entered into a Definitive Purchase Agreement with
Jackson Saving Bank pursuant to which the Company will acquire Jackson Savings
as a wholly-owned subsidiary. Under the terms of the Agreement, each of the
19,400 shares of Jackson Savings will be exchanged for a number of the Company's
common shares with a total market value equal to $163.09. The proposed
acquisition is subject to certain conditions, including the approval of Jackson
Savings Bank shareholders and approval of certain regulatory authorities. The
transaction is expected to be completed in the third quarter of 1998. Jackson
Savings is a savings bank located in Jackson, Ohio with approximately $15.5
million in assets and $2.7 million in shareholders' equity at March 31, 1998.
Management entered into the agreement to expand and enhance the Company's
banking activities in Jackson County.
The Company expects to open two more branches during the third quarter of this
year. These offices will be SuperBanks which offer seven day a week banking. The
first, scheduled to open in August, will be located in a new 189,000 square foot
WalMart SuperCenter in Cross Lanes, West Virginia. The next will be located in
the Big Bend Foodland in Pomeroy, Ohio. Both offices will allow the Company to
market its services to a new customer base.
FINANCIAL CONDITION
Total assets at June 30, 1998, were $391,310 compared to $364,095 at December
31, 1997, representing an increase of 7.5%. The growth in assets occurred in
loans and federal funds sold which had increases of $19,561 and $6,306. Funding
the growth in assets were increases in deposits of $9,504, borrowed funds of
$7,663 and repurchase agreements of $6,815.
For the first half of 1998, loan growth was led by real estate mortgages
expanding $17,406 driven by low interest rates. A majority of the growth has
occurred in Jackson and Pike counties in Ohio and Mason county in West Virginia.
These represent newer markets for the Company. For the same time period,
consumer loans expanded $2,219 and commercial loans expanded $574. Loans past
due more
11
than 90 days plus loans placed on nonaccrual status were approximately $3,417 or
1.18% of outstanding balances at June 30, 1998, compared to $4,196 or 1.56% of
outstanding balances at the end of 1997. Management anticipates that it will
continue its provision to the allowance for loan losses at its current level for
the foreseeable future and believes the allowance is adequate to absorb inherent
losses in the portfolio based on collateral values and a comprehensive analysis
of the allowance for loan and lease loss which is performed on a quarterly
basis. As a percentage of total loans, the allowance for loan losses at June 30,
1998 was 1.22% unchanged from December 31, 1997.
Total deposits at June 30, 1998, of $303,216 represents an increase of $9,504 or
3.2% from December 31, 1997. Savings and interest-bearing demand deposits
accounted for a majority of the growth with an increase of $7,363 followed by
noninterest-bearing deposits increasing $2,928.
Securities sold under agreements to repurchase increased $6,815 from December
31, 1997 and is due mostly to one customer. Other borrowed funds are primarily
advances from the Federal Home Loan Bank (FHLB), which are used to fund loan
growth or short-term liquidity needs. FHLB borrowings have two distinct
advantages: they are less expensive than deposits for comparable terms and they
are not subject to pre-mature withdrawal. Other borrowed funds are up $7,663
from December 31, 1997. A portion of the growth is related to the Bank
participating in a program with the Federal Reserve who deposits tax receipts in
banks in the form of collateralized interest-bearing notes. The balance of these
notes at June 30, 1998, was $4,700.
Total shareholders' equity at June 30, 1998 of $36,090 was 5.6% greater than the
balance of $34,166 on December 31, 1997. Contributing to this increase was
year-to-date income of $1,925 and proceeds from the issuance of common stock
through the dividend reinvestment plan of $752 less cash dividends paid of $741,
or $.27 per share adjusted for stock split. The cash dividend represents 38.5%
of the year-to-date income.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp.'s net income was $988 for the second quarter and $1,925
for the first six months of 1998, up 8.7% and 13.6%, compared to $909 and $1,694
for the same periods in 1997. Second quarter net income per share, adjusted for
the stock split, was $.36, up 5.88% over last year's $.34 and for the first six
months of 1998, net income per share was $.71, up 10.94% over 1997's $.64.
Comparing the first half of 1998 to the first half of 1997, return on average
assets was 1.04% compared to .98% and return on average equity was 11.09%
compared to 11.02%.
The Company's enhanced financial performance was primarily attributable to gains
in net interest income which exceeded the year-to-date and second quarter of
last year by $1,212 and $696. The increase in net interest income was due to the
growth in earning assets combined with a higher net interest margin. The gain in
net interest income was partially offset by net noninterest expense being up
$492 for the first six months and being up $255 for the second quarter in 1998
compared to the same periods in 1997.
12
The provision for loan losses was $892 for the six months ending June 30, 1998,
compared to $502 for the same time period in 1997. The increase in provision
expense was related to net loan charge-offs increasing $208, primarily in
consumer loans. Furthermore, the loan portfolio has grown 7.3% in 1998.
Total other income increased $164 and $77 over the year-to-date and second
quarter of 1997. Contributing to the gain was the collection of an outstanding
insurance commission of $41 and the increase in deposit service charges due to
the growth in account volume. Total other expense increased $656 or 11.1% over
the first six months of 1997 and increased $332 or 11.0% over the second quarter
of 1997. With the establishment of additional offices and growth in assets which
require more people to service, the number of full-time equivalent employees
increased by 13 from June 30, 1997 to June 30, 1998. Salary and employee
benefits are up $325 over the first half of 1997 and are up $162 over the second
quarter of 1997. Additionally, the Company awarded annual merit increases. The
growth in operations coupled with the investment in processing technology
provided for the increase in occupancy expense and furniture and equipment
expense. The upgrade in technology produced a decrease in data processing.
Contributing to the increase in other operating expense was computer software
depreciation and general increases in overhead expenses.
In May 1997, a six member committee was formed and charged with the
responsibility of ensuring that the Company will be ready for the Year 2000
transition. This committee has conducted extensive inventories of the Company's
computer software and hardware as well as other equipment that may be microchip
dependent. The vendors associated with the aforementioned hardware and software
were contacted to determine the product's Year 2000 readiness. A Year 2000 plan
has been developed which commits the Company to being Year 2000 compliant by
December 31, 1998, thereby affording the Company one full year to test all
mission critical systems to verify their viability for the Year 2000 and beyond.
Management does not believe that the associated costs relating to the Year 2000
effort will materially affect the Company's results of operations, liquidity and
capital resources. In an effort to assess and assist the Year 2000 efforts of
our customers, the Company sponsored a forum in December of 1997 on Year 2000
date change issues and is conducting interviews with major borrowers and
depositors in an attempt to determine their readiness with the century date
change.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
June 30, 1998 December 31, 1997 Minimum
------------- ------------------- -----------
Tier 1 risk-based capital 13.0% 13.0% 4.00%
Total risk-based capital ratio 14.2% 14.2% 8.00%
Leverage ratio 9.4% 9.3% 4.00%
Cash dividends paid of $741 for the first six months of 1997 represents a 8.5%
increase over the cash dividends paid during the same period in 1997. The
increase in cash dividends paid is due to the
13
additional shares outstanding during 1998 which were not outstanding during 1997
and to the increase in the dividend paid per share. During the first half of
1998, the Company issued 22,059 shares under the dividend reinvestment and stock
purchase plan. At June 30, 1998, approximately 66% of the shareholders were
enrolled in the dividend reinvestment plan. Members of the plan invested $752
for the first six months of 1998 which exceeded year-to-date dividends paid.
LIQUIDITY
Liquidity relates to the Bank's ability to meet the cash demands and credit
needs of its customers and is provided by the ability to readily convert assets
to cash and raise funds in the market place. Total cash and cash equivalents,
interest-bearing deposits with banks, securities available-for-sale and the fair
value of held-to-maturity securities maturing within one year of $49,984
represented 12.8% of total assets at June 30, 1998. In addition, the Corporation
has established a $16,900 line of credit with the Federal Home Loan Bank (FHLB)
in Cincinnati to further enhance the bank's ability to meet liquidity demands.
As of June 30, 1998, the Bank had the full amount of the line of credit
available. Furthermore, the Bank would be able to borrow an additional $50,472
from the FHLB based on the Bank's available collateral. The Company experienced
an increase of $8,136 in cash and cash equivalents for the six months ended June
30, 1998. See the condensed consolidated statement of cash flows on page 5 for
further cash flow information.
CONCENTRATION OF CREDIT RISK
The Company maintains a diversified credit portfolio, with real estate loans
comprising the most significant portion. Credit risk is primarily subject to
loans made to businesses and individuals in southeastern Ohio. Management
believes this risk to be general in nature, as there are no material
concentrations of loans to any industry or consumer group. To the extent
possible, the Company diversifies its loan portfolio to limit credit risk by
avoiding industry concentrations.
14
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's 1997 annual report and Form 10-K provide information about the management of interest rate risk.
The following table provides information about the Company's financial instruments that are sensitive to
changes in interest rates.
As of June 30, 1998
Principal Amount Maturing in:
(dollars in thousands) There- Fair Value
1998 1999 2000 2001 2002 after Total 06/30/98
Rate-Sensitive Assets:
Fixed interest rate loans $ 3,599 $ 5,542 $ 10,442 $ 17,087 $ 16,924 $ 73,348 $126,942 $128,472
Average interest rate 10.63% 11.95% 12.04% 11.34% 11.02% 8.85% 9.92%
Variable interest rate loans $ 27,832 $ 5,132 $ 3,568 $ 6,788 $ 8,550 $110,528 $162,398 $162,398
Average interest rate 11.25% 9.77% 10.06% 9.74% 9.31% 8.21% 8.95%
Fixed interest rate securities $ 10,092 $ 11,592 $ 8,374 $ 10,333 $ 10,363 $ 19,293 $ 70,047 $ 70,943
Average interest rate 6.90% 6.87% 6.23% 6.68% 6.36% 6.92% 6.70%
Other interest-bearing assets $ 6,541 $ 6,541 $ 6,541
Average interest rate 5.51% 5.51%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 4,803 $ 4,579 $ 3,678 $ 3,236 $ 2,848 $ 20,884 $ 40,028 $ 40,028
Savings & Interest-bearing checking $ 12,453 $ 10,196 $ 8,390 $ 6,941 $ 5,773 $ 37,321 $ 81,074 $ 81,074
Average interest rate 2.55% 2.56% 2.58% 2.60% 2.62% 2.79% 2.74%
Time deposits $76,482 $ 71,730 $ 17,038 $ 5,465 $ 3,895 $ 7,504 $182,114 $184,036
Average interest rate 5.64% 5.63% 5.75% 5.91% 6.47% 6.31% 5.76%
Fixed interest rate borrowings $ 7,055 $ 3,789 $ 1,500 $ 2,000 $ 3,777 $ 9,021 $ 27,142 $ 26,872
Average interest rate 6.76% 5.96% 6.08% 5.80% 5.92% 5.57% 6.03%
Variable interest rate borrowings $ 19,646 $ 19,646 $ 19,646
Average interest rate 4.08% 4.08%
15
OHIO VALLEY BANC CORP
Part II - Other Information
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
Ohio Valley Banc Corp. held its Annual Meeting of Shareholders on April 8, 1998,
for the purpose of electing directors. Shareholders received proxy materials
containing the information required by this item. Three Directors, Jeffrey E.
Smith, Robert H. Eastman and Warren F. Sheets, were nominated for reelection and
were reelected. The summary of voting of the 1,811,775 shares outstanding were
as follows:
Director Candidate Shares voted: For Against Abstain
- ------------------ --- ------- -------
Jeffrey E. Smith 1,495,554 8,937
Robert H. Eastman 1,494,729 825 8,937
Warren F. Sheets 1,476,824 18,730 8,937
307,284 shares were not voted.
Exhibits and Reports on Form 8-K
- --------------------------------
A. Exhibit 27 - Financial Data Schedule [Exhibit is filed herewith.]
B. Form 8-K dated April 15, 1998 describing the merger agreement between the
Company and Jackson Savings Bank was previously filed and is incorporated
into this Form 10-Q by reference.
OHIO VALLEY BANC CORP.
------------------------------------
Date July 30, 1998 /S/ James L. Dailey
----------------- ------------------------------------
James L. Dailey
Chairman and Chief Executive Officer
Date July 30, 1998 /S/ Jeffrey E. Smith
----------------- ------------------------------------
Jeffrey E. Smith
President, Chief Operating Officer
and Treasurer
16