MESSAGE FROM MANAGEMENT
- -----------------------
Determination is a word usually reserved for physical feats rather than the
day-to-day operations of a financial institution. However, it is determination
that separates Ohio Valley Banc Corp. from its competitors.
1998 was a year of unsurpassed effort by the OVB Team which rewarded its company
with a year of record expansion of growth and earnings. We would challenge any
company our size to accomplish what our people did in 1998. The year led to the
opening of three new SuperBanks, one new Ohio Valley Bank, and a new Loan
Central office. The Banc Corp. acquired a new subsidiary, Jackson Savings Bank,
and Ohio Valley Bank installed seven new ATMs at various locations throughout
our market area.
The year started with the February opening of Loan Central's third office,
located in Jackson, Ohio. That office was soon followed by the convenient new
Ohio Valley Bank Point Pleasant facility which opened in mid March. The new
full-service office has already surpassed expectations and has provided a base
of operations to launch further expansion into the West Virginia market.
During the summer and into the fall the fast pace pressed on with the
back-to-back openings of three new SuperBanks: within the WalMart SuperCenter in
Gallipolis, Ohio; WalMart SuperCenter in Cross Lanes, West Virginia; and the Big
Bend Foodland in Pomeroy, Ohio.
The year wrapped up with the acquisition of Jackson Savings Bank based in
Jackson, Ohio. As of March 31, 1998, the state chartered bank reported total
assets of $15.5 million and shareholders' equity of $2.7 million. JSB
contributed $341.9 thousand ($.12 per share) in net income for the company in
1998. At year's end the Bank's president, Harold A. Howe, was welcomed to the
OVB Board of Directors as Jackson Savings Bank embarks on its 100th year of
service.
Due to its experienced determination, the growth and progress your company made
this year was substantial. Ohio Valley Banc Corp. marked an increase in net
income of 9 percent for 1998 compared to a year ago. Net income for 1998 was
$4.13 million compared to $3.78 million for 1997, a gain of $348 thousand. Net
income per share for the year was $1.47 versus $1.38 per share in 1997. The
increase of $.09 per share represented an increase of 6.52 percent.
Cash dividends for 1998 were $.55 per share compared to $.52 for 1997, an
increase of 5.8 percent. Earnings and cash dividends per share are based on
weighted average number of shares outstanding of 2,801,892 for 1998 and
2,741,280 for 1997.
Total shareholders' equity increased by $3,846,000. The book value of your stock
increased $1.16 to $14.42 per share, based on 2,818,413 shares outstanding for
December 31, 1998 versus 1,876,099 for December 31, 1997. The NASDAQ quote on
market value of Ohio Valley Banc Corp. stock at year end 1998 was $41.00 bid and
$42.00 ask. The year end 1997 bid was $23.33 and $25.33 ask. All per share
numbers have been adjusted for the 50 percent stock split effective April 8,
1998.
We expect challenges as we move forward toward the 21st Century. One of those
challenges, the year 2000 computer date change, we have prepared for. We highly
recommend you read the references to this problem and our preparations for it in
the Senior Reports. Further information regarding the financial condition and
results of operation of your Company may be found in Management's Discussion and
Analysis of Operations contained in the financial report.
Three officer promotions were made to maintain the tremendous growth your
company experienced this year. Cherie Barr was promoted to Senior Vice President
and Secretary of Loan Central, Inc.; Phil Miller to OVB Assistant Cashier,
Franklin County Region Manager; and Keith Johnson to OVB Assistant Cashier and
Collections Manager.
The SuperBank in Cross Lanes was constructed, stocked and fully operational in
only six weeks. The tremendous growth you've seen this past year is not just a
trend, it's a mission. A mission that's being accomplished through determination
from experienced employees. When no one thought it could be done, we did it. And
we'll do it again.
Ohio Valley Banc Corp.
James L. Dailey
Chairman of the Board and
Chief Executive Officer
Jeffrey E. Smith
President and
Chief Operating Officer
GROUP REPORTS
- -------------
1998 was a successful year for all groups of Ohio Valley Banc Corp. Credit for
many of the year's accomplishments can be attributed to more than one group, as
all groups worked together for the good of the company.
1998 was an outstanding year for the Retail Bank Group. Our Loan department set
a record for interest income. Real estate lending was at an all time high, with
the Waverly Office leading in originations. Installment lending activity
continues to increase, as well as in our Indirect Lending department.
We introduced our new Gold Club. This package features an interest bearing
checking account with unlimited transactions, overdraft protection, an OVB VisaO
Gold card and other free services.
With help from the Administrative Services team, we accomplished several
projects that will afford our customers additional convenience and services. We
placed eight new Automatic Teller Machines (ATMs) at various convenient stores
in Ohio and WV. And...if you happen to spot a bright, shiny, red thing on wheels
that says "Fast Cash", that is our new mobile ATM. Be sure to watch for this at
upcoming events throughout our market area. And, best of all, OVB's
Administrative team built the mobile unit.
In the midst of our usual busy days, our team opened and staffed four new retail
offices in 1998, beginning in March with Point Pleasant, WV. 1998 was a very
rewarding year for the West Virginia Bank Group of Ohio Valley Bank. Our
dedicated experienced staff quickly adapted to their new environment, became a
smooth working team and enabled us to far exceed our marketing plan for this
newest Ohio Valley Bank Division. We were able to exceed our growth projection
for both deposits and loans. During the coming year, we anticipate continued
strong growth in deposits and lending.
The West Virginia Group Advisory Board of Directors has proved to be a very
valuable resource for both our staff and our customers. The Advisory Board's
input into the operation enables our staff to respond to customers' needs in a
very meaningful and professional way. We have been able to design and market new
products to meet customers' requests.
Then, the Retail Bank Group continued our journey of Supermarket Banking. On May
20, we opened our second SuperBank at the new Gallipolis Wal Mart SuperCenter.
At this office the loan activity has been tremendous. One new customer even
commented, "I applied for a loan, opened a checking account and got a haircut in
one stop shopping!".
A few weeks later we began a new challenge in a new and aggressive market. In
August, the West Virginia Group expanded its operation when they opened Ohio
Valley Bank's third SuperBank in the Wal Mart SuperCenter at Cross Lanes. We are
really excited about our entry into Putnam County, the fastest growing market in
West Virginia. The West Virginia Group (staff and advisory board) is poised to
continue to bring community banking to the people of northern West Virginia.
Most recently, on December 11, we opened our fourth SuperBank at the Pomeroy
Foodland. Our SuperBanks offer evening and weekend hours. We receive many
favorable comments regarding the convenience. While our traditional offices are
still very busy, the SuperBanks' success are additional proof to support the
philosophy that "friendly service and convenience are important to our
customers".
It's hard to believe another year has past. And what a busy year that was! The
Administrative Services Bank Group kept very busy; especially the Administrative
Services department. In fact, they hardly had the opportunity to catch their
breath between construction jobs, as they acted as a support group for the
Retail and West Virginia Bank Groups as they opened these four new offices. They
also opened a new Loan Central office during the year. Needless to say, our
Administrative Services staff needs a round of applause. The Processing
Department also kept busy as normal with their daily sorting and mailing of
approximately 39,211 pieces of mail a month. January is always a busy month with
the addition of 1099s to be mailed. In just two days, 18,000 1099s were sorted
and mailed and within one week's time, we mailed 38,500 pieces of end of the
year mail. They are a small, but busy bunch.
Of course, our Human Resource/Payroll Department keeps busy with bi-weekly
payrolls, benefits, and employee's situations and problems. The last payroll of
the year, 241 employees were paid.
The Training Department continued to give new employees their start in banking.
Forty-nine new employees were trained during 1998. That department was also
instrumental in beginning an in-house "OVB Continuing Education Program".
Through this voluntary program, employees may choose to expand their banking
knowledge by taking banking related courses. These classes are taught by OVB
managers and employees receive credits that will be applied toward an OVB
diploma.
Even though the Administrative Services Group is a small group in number, we are
an intricate part of OVB. We are looking forward to 1999 and ways to make 1999
even bigger and better.
In the Commercial Bank Group, 1998 was a year for building and growing on the
foundations that were laid in 1997. With well-trained support staff and a new
computer system in place, we started the year with a commitment to expand our
base in the central Ohio area as well as our other markets. Our "Red Carpet
Service" was well received in the new market areas and was our best form of
advertising. The ability to respond quickly to customer requests and to meet
their needs was a major contributor to our 91% commercial loan volume increase
over 1997.
The decreases in Prime Rate provided a challenging opportunity to retain old
customers, attract new customers and yet maintain the necessary yields to the
bank. This combination of volatile factors taxed even our most creative minds
during the year. Yet we saw growth, customer satisfaction, contained overhead
costs and profitability for the year.
As we look to the coming year, we recognize that the changing markets and
reduced interest spreads will require more intense scrutiny of the customer
requests and needs. We will continue to research each opportunity of profitable
markets with significant efforts directed to the Kanawha and Putnam counties in
West Virginia. We believe this is an untapped market for us in which we can
provide the same combination of services and products that allowed us to grow in
the central Ohio area.
We believe that 1999 will be a year of continual building on previously
established foundations. We will see new faces and new opportunities. We will
remain the same "down home" group of employees who know that "If we don't take
care of the customer, someone else will."
Performance and Growth...these words capture Loan Central's theme for its second
full year of operation. During 1998, the finance company opened its third
successful office in late February in Jackson, Ohio.
The combined loan balance for our three offices are $6.3 million. This was an
increase of $2.3 million or 57% in our loan portfolio. The net income
contributed to the company by Loan Central in 1998 was $102.7 thousand ( $.04
per share) which was an increase of $75.2 thousand over 1997. Loan Central
introduced a new line of Life Insurance Products in June 1998 to better serve
our customers. Our life insurance products are a superb fit for our customer
base and has helped with our growth and increased profitability.
We work hard to go the extra mile for every customer. We believe Loan Central's
best years lie ahead. We are working to be the premier provider of financial
services in our markets and produce solid returns for our shareholders.
Finally, we come to the Financial Bank Group, where recently, the spotlight of
public attention has been focused on the approach of the year 2000 and the
problems the new millennium may create for our computerized society. Your
company has been busy addressing this problem for almost two years now. In May
of 1997, a six member Year 2000 Committee was formed to ensure that Ohio Valley
Banc Corp. was properly prepared for the rollover to the new century. Later that
same year, your company spent over one million dollars on new computer hardware
and software to replace the bank's data processing system. Our new technology
was developed with the year 2000 in mind. The vendor has even given us a
warranty guaranteeing that their software is year 2000 compliant. More than 300
banks across the country utilize this software.
Nevertheless, in late 1998, four of our employees traveled to a computer center
in Indiana and tested our computer technology to verify if our system was really
year 2000 compliant. At year end 1998, no year 2000 problems had been
identified.
Ohio Valley Banc Corp.'s flagship company, The Ohio Valley Bank, has been a
successful company for over 125 years now. During that time the company has
endured two world wars, the Great Depression, floods, power outages and even
chemical spills as well as many other challenges. We are confident that your
company is well positioned for the challenges and opportunities that lie ahead.
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 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.
In April 1996, the Banc Corp opened a consumer finance company operating under
the name of Loan Central with offices in Gallipolis, South Point and Jackson,
Ohio.
In December 1998, the Banc Corp purchased Jackson Savings Bank based in Jackson,
Ohio, to be operated as a wholly-owned subsidiary. Jackson Savings Bank is
insured under the Federal Deposit Insurance Act and is chartered under the
banking laws of the State of 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.
FINANCIAL HIGHLIGHTS
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
NET INCOME ($000) $ 4,130 $ 3,782 $ 3,349 $ 2,938 $ 2,521
TOTAL ASSETS ($000) $447,448 $379,088 $355,986 $331,845 $328,493
INCOME PER SHARE $ 1.47 $ 1.38 $ 1.25 $ 1.13 $ 1.00
DIVIDENDS PER SHARE $ .55 .52 .50 .47 .44
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
and Treasurer, Ohio Valley Banc Corp.
Thomas E. Wiseman
President,
The Wiseman Agency, Inc.
DIRECTORS
OHIO VALLEY BANK COMPANY
Phil A. Bowman Keith R. Brandeberry
Mining Consultant and
Developer
W. Lowell Call James L. Dailey
Robert H. Eastman Merrill L. Evans
Lloyd R. Francis Art E. Hartley, Sr.
Developer Chairman of the Board,
City Ice and Fuel, Inc.
Morris E. Haskins Harold A. Howe
President, Jackson Savings Bank
Charles C. Lanham Frank H. Mills, Jr.
Executive Vice President, Farmer
Ohio Valley Bank
Warren F. Sheets Jeffrey E. Smith
Lannes C. Williamson Thomas E. Wiseman
President, L. Williamson
Pallets, Inc.
DIRECTOR EMERITUS
C. Leon Saunders
Retired Bank Executive
OFFICERS
OHIO VALLEY BANC CORP
James L. Dailey Jeffrey E. Smith
Chairman and President, Chief Operating Officer,
Chief Executive Officer and Treasurer
Charles C. Lanham Wendell B. Thomas
Senior Vice President Vice President and Secretary
Cherie A. Barr Sue Ann Bostic
Vice President Vice President
Katrinka V. Hart Harold A. Howe
Vice President Vice President
Mario P. Liberatore E. Richard Mahan
Vice President Vice President
Larry E. Miller, II Cindy H. Johnston
Vice President Assistant Secretary
Paula W. Salisbury
Assistant Secretary
WEST VIRGINIA ADVISORY BOARD
Anna P. Barnitz Richard L. Handley
Business Manager/Treasurer Educator,
Bob's Market and Greenhouses, Inc. Mason County Board of Education
Art E. Hartley, Sr. Gregory K. Hartley
President,
City Ice and Fuel, Inc.
Charles C. Lanham Mario P. Liberatore
Advisory Board Chairman and
Senior Vice President W.V. Bank Group
John C. Musgrave Trenton M. Stover
West Virginia Lottery Director CPA/Owner,
Trenton Stover CPA
Lannes C. Williamson R. Raymond Yauger
President,
Yauger Farm Supply, Inc.
DIRECTORS
JACKSON SAVINGS BANK
Phil A. Bowman James L. Dailey
Harold A. Howe Charles C. Lanham
Wendell B. Thomas
OFFICERS
JACKSON SAVINGS BANK
Harold A. Howe Wendell B. Thomas
President Secretary
Cindy H. Johnston Paula W. Salisbury
Assistant Secretary Assistant Secretary
OFFICERS
LOAN CENTRAL
Jeffrey E. Smith Cherie A. Barr
President Senior Vice President and Secretary
Timothy R. Brumfield Renae L. Hughes
Manager, Gallipolis Office Manager, Jackson Office
T. Joe Wilson
Manager, South Point Office
OFFICERS
OHIO VALLEY BANK COMPANY
James L. Dailey Jeffrey E. Smith
Chairman and President and
Chief Executive Officer Chief Operating Officer
Charles C. Lanham Wendell B. Thomas
Executive Vice President Senior Vice President
and Secretary
Sue Ann Bostic Katrinka V. Hart
Senior Vice President, Senior Vice President,
Administrative Services Group Retail Bank Group
Mario P. Liberatore E. Richard Mahan
Senior Vice President, Senior Vice President,
West Virginia Bank Group Commecial Bank Group
Larry E. Miller, II Patricia L. Davis
Senior Vice President, Vice President,
Financial Bank Group Management Information Systems
Bryan W. Martin Richard D. Scott
Vice President, Vice President, Trust
Facilities and Technical
Services
David L. Shaffer Tom R. Shepherd
Vice President, Vice President, Marketing
Retail Lending
Sandra L. Edwards Hugh H. Graham, Jr.
Assistant Vice President, Assistant Vice President,
Operations Center Manager Retail Expansion and Acquisitions
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
Molly K. Tarbett Phyllis P. Wilcoxon
Assistant Vice President, Assistant Vice President for
Deposit Operations Manager Shareholder Relations
Darren R. Blake Judy K. Hall
Assistant Cashier, Assistant Cashier and Manager,
Research and Development for MIS Training and Educational Development
Brenda G. Henson Keith A. Johnson
Assistant Cashier, Assistant Cashier,
Manager Customer Service Collections Manager
N. Kathryn Massie Philip E. Miller
Assistant Cashier, Assistant Cashier,
Telemarketing and Region Manager Franklin County
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
Cindy H. Johnston Paula Salisbury
Assistant Secretary Assistant Secretary
SELECTED FINANCIAL DATA
Years Ended December 31
SUMMARY OF OPERATIONS: 1998 1997 1996 1995 1994
(dollars in thousands, except per share data)
Total interest income $ 35,191 $ 31,453 $ 28,252 $ 26,187 $ 22,579
Total interest expense 15,691 14,517 12,856 13,227 10,745
Net interest income 19,500 16,936 15,396 12,960 11,834
Provision for loan losses 2,295 1,245 1,328 634 430
Total other income 2,760 1,860 1,419 1,333 1,135
Total other expenses 14,201 12,293 10,738 9,509 8,866
Income before income taxes
and cumulative effect of
change in accounting method 5,764 5,258 4,749 4,150 3,673
Income taxes 1,634 1,476 1,400 1,212 1,118
Cumulative effect of change
in accounting method (34)
Net income 4,130 3,782 3,349 2,938 2,521
PER SHARE DATA(1):
Net income per share $ 1.47 $ 1.38 $ 1.25 $ 1.13 $ 1.00
Cash dividends per share $ .55 $ .52 $ .50 $ .47 $ .44
Weighted average number
of shares outstanding 2,802 2,741 2,673 2,603 2,519
AVERAGE BALANCE SUMMARY:
Total loans $305,392 $271,535 $248,833 $217,907 $205,677
Securities (2) 74,478 73,303 76,907 97,609 94,238
Deposits 319,493 304,296 290,790 281,158 270,954
Shareholders' equity 38,639 34,449 30,958 27,900 25,106
Total assets 408,482 369,552 342,588 334,942 317,688
PERIOD END BALANCES:
Total loans $347,130 $280,267 $264,660 $227,217 $210,974
Securities (2) 72,419 76,711 71,135 87,771 98,105
Deposits 327,317 306,037 294,325 284,785 276,828
Shareholders' equity 40,680 36,834 32,874 29,861 26,416
Total assets 447,448 379,088 355,986 331,845 328,493
KEY RATIOS:
Return on average assets 1.01% 1.02% .98% .88% .79%
Return on average equity 10.69% 10.98% 10.82% 10.53% 10.04%
Dividend payout ratio 37.13% 37.81% 39.53% 41.59% 44.37%
Average equity to
average assets 9.46% 9.32% 9.04% 8.33% 7.90%
(1) Restated for stock splits as appropriate.
(2) Securities include interest-bearing balances with banks.
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31 1998 1997
----------------- ---- ----
(dollars in thousands)
ASSETS
Cash and noninterest-bearing deposits with banks $ 12,342 $ 7,787
Federal funds sold 375 94
-------- --------
Total cash and cash equivalents 12,717 7,881
Interest-bearing balances with banks 795 3,923
Securities available-for-sale 26,255 33,369
Securities held-to-maturity 45,369 39,419
Total Loans 347,130 280,267
Less: Allowance for loan losses (4,277) (3,390)
-------- --------
Net Loans 342,853 276,877
Premises and equipment 8,360 7,326
Accrued income receivable 2,723 2,503
Other assets 8,376 7,790
-------- --------
Total assets $447,448 $379,088
======== ========
LIABILITIES
Noninterest-bearing deposits $ 45,961 $ 37,100
Interest-bearing deposits 281,356 268,937
-------- --------
Total Deposits 327,317 306,037
Securities sold under agreements to repurchase 19,066 12,831
Other borrowed funds 55,743 19,479
Accrued liabilities 4,642 3,907
-------- --------
Total liabilities 406,768 342,254
-------- --------
SHAREHOLDERS' EQUITY
Common stock ($1 stated value: 5,000,000 shares
authorized; 2,818,413 and 1,876,099 shares issued
and outstanding at December 31, 1998 and
December 31, 1997) 2,818 1,876
Surplus 27,598 26,275
Retained earnings 9,797 8,113
Net unrealized gain on available-for-sale securities 467 570
-------- --------
Total shareholders' equity 40,680 36,834
-------- --------
Total liabilities and shareholders' equity $447,448 $379,088
======== ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 1998 1997 1996
------------------------------- ---- ---- ----
(dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans $30,550 $26,858 $23,682
Interest on taxable securities 3,212 3,361 3,453
Interest on nontaxable securities 794 635 618
Dividends 245 203 149
Other interest 390 396 350
------- ------- -------
Total interest income 35,191 31,453 28,252
INTEREST EXPENSE:
Interest on deposits 13,489 13,163 12,092
Interest on repurchase agreements 685 435 339
Interest on other borrowed funds 1,517 919 425
------- ------- -------
Total interest expense 15,691 14,517 12,856
------- ------- -------
NET INTEREST INCOME 19,500 16,936 15,396
Provision for loan losses 2,295 1,245 1,328
------- ------- -------
Net interest income after provision
for loan losses 17,205 15,691 14,068
OTHER INCOME:
Service charges on deposit accounts 969 788 791
Trust division income 212 192 197
Other operating income 1,137 880 459
Net realized gain (loss) on sale of
available-for-sale securities 442 (28)
------- ------- -------
2,760 1,860 1,419
------- ------- -------
OTHER EXPENSE:
Salaries and employee benefits 8,089 7,312 6,373
Occupancy expense 764 537 453
Furniture and equipment expense 904 749 606
Corporation franchise tax 368 367 412
Data processing expense 346 419 479
Other operating expenses 3,730 2,909 2,415
------- ------- -------
14,201 12,293 10,738
------- ------- -------
Income before income taxes 5,764 5,258 4,749
Provision for income taxes 1,634 1,476 1,400
------- ------- -------
NET INCOME $ 4,130 $ 3,782 $ 3,349
======= ======= =======
Earnings per share $ 1.47 $ 1.38 $ 1.25
======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
Net Unrealized
Gain (Loss)
on Available- Total
Common Retained for-Sale Shareholders'
(dollars in thousands) Stock Surplus Earnings Securities Equity
----- ------- -------- ---------- ------
BALANCES AT JANUARY 1, 1996 $10,367 $12,184 $ 6,778 $ 532 $29,861
Comprehensive income:
Net income 3,349 3,349
Net change in unrealized gain
on available-for-sale securities (93) (93)
-------
Total comprehensive income 3,256
Common Stock split, 25% 2,580 (2,580)
Cash paid in lieu of fractional
shares in stock split (9) (9)
Common Stock issued, 5,500 shares 55 140 195
Common Stock issued through
dividend reinvestment 255 640 895
Cash dividends, $.50 per share (1,283) (1,283)
Dividends of pooled affiliate (41) (41)
------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 1996 13,257 12,964 6,214 439 32,874
Comprehensive income:
Net income 3,782 3,782
Net change in unrealized gain
on available-for-sale securities 131 131
-------
Total comprehensive income 3,913
Change in stated value from $10 per
share to $1 per share (11,937) 11,937
Common Stock split, 33-1/3% 442 (442)
Cash paid in lieu of fractional
shares in stock split (11) (11)
Common Stock issued, 6,500 shares 6 231 237
Common Stock issued through
dividend reinvestment 108 1,143 1,251
Cash dividends, $.52 per share (1,396) (1,396)
Dividends of pooled affiliate (34) (34)
------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 1,876 26,275 8,113 570 36,834
Comprehensive income:
Net income 4,130 4,130
Net change in unrealized gain
on available-for-sale securities (103) (103)
-------
Total comprehensive income 4,027
Common Stock split, 50% 906 (906)
Cash paid in lieu of fractional
shares in stock split (7) (7)
Common Stock issued, 5,450 shares 5 223 228
Common Stock issued through
dividend reinvestment 31 1,100 1,131
Cash dividends, $.55 per share (1,506) (1,506)
Dividends of pooled affiliates (27) (27)
------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 $ 2,818 $27,598 $ 9,797 $ 467 $40,680
======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 1998 1997 1996
------------------------------- ---- ---- ----
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,130 $ 3,782 $ 3,349
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 947 705 551
Net amortization and accretion of securities 137 47 50
Deferred tax benefit (384) 15 (196)
Provision for loan losses 2,295 1,245 1,328
Contribution of common stock to ESOP 228 237 195
FHLB stock dividend (190) (172) (106)
Net gain on sale of equity securities (459)
Net loss on sale of equity securities 17 28
Change in accrued income receivable (220) (148) 53
Change in accrued liabilities 735 1,112 (69)
Change in other assets 568 (1,339) 263
------- ------- -------
Net cash provided by operating activities 7,804 5,484 5,446
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available-for-sale 9,300 4,500 11,000
Purchases of securities available-for-sale (2,917) (6,314) (8,708)
Proceeds from maturities of securities
held-to-maturity 12,850 14,390 14,063
Purchases of securities held-to-maturity (18,942) (17,900) (770)
Proceeds from sale of equity securities 1,075 364
Change in interest-bearing deposits in other banks 3,128 (478) (30)
Net increase in loans (68,271) (16,179) (38,149)
Purchases of premises and equipment (1,981) (1,666) (1,339)
Purchases of insurance contracts (580) (635) (5,210)
------- ------- -------
Net cash used in investing activities (66,338) (24,282) (28,779)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits 21,280 11,712 9,540
Cash dividends (1,533) (1,430) (1,324)
Cash paid in lieu of fractional shares in stock split (7) (11) (9)
Proceeds from issuance of common stock 1,131 1,251 895
Change in securities sold under agreements to repurchase 6,235 4,117 (790)
Proceeds from long-term borrowings 35,164 11,425 4,500
Repayment of long-term borrowings (8,498) (6,681) (2,869)
Change in other short-term borrowings 9,598 (2,475) 10,850
------- ------- -------
Net cash used in financing activities 63,370 17,908 20,793
------- ------- -------
CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents 4,836 (890) (2,540)
Cash and cash equivalents at beginning of year 7,881 8,771 11,311
------- ------- -------
Cash and cash equivalents at end of year $12,717 $ 7,881 $ 8,771
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $15,578 $13,861 $12,972
Income taxes 1,715 1,218 1,441
See accompanying notes to consolidated financial statements
Note A - Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of the Ohio Valley Banc Corp. (the Company) and its wholly-owned
subsidiaries, The Ohio Valley Bank Company (the Bank), Loan Central, a consumer
finance company, and Jackson Savings Bank (Jackson). 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 16 offices located in central and southeastern Ohio as well as Point
Pleasant and Cross Lanes, West Virginia. 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. Management considers the Company to operate in one segment,
banking.
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.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses. Loans
held for sale are reported at the lower of cost or market, on an aggregate
basis.
Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income is not reported when full loan repayment is in doubt, typically when the
loan is impaired or payments are past due over 90 days (180 days for residential
mortgages). Payments received on such loans are reported as principal
reductions.
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.
Loans are considered impaired if full principal or interest payments
are not anticipated. Impaired loans are carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair value
of the collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one-to-four family residences,
residential construction loans, credit card and automobile, home equity and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Loans are generally moved to
nonaccrual status when 90 days or more past due. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectable. This typically occurs when the loan is 120 or more days
past due.
Summary of Significant Accounting Policies (continued)
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 Dec. 31, 1998:
% of Total Loans
----------------
Real Estate loans .......................... 47.14%
Commercial and industrial loans............. 27.69%
Consumer loans ............................. 24.68%
All other loans ............................ .49%
------
100.00%
======
Approximately 8.04% 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, 1998, the Bank's primary
correspondent balance was $6,736 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
lower of investment in loan or estimated fair value of the property less
estimated selling costs. Any reduction to fair value at the time of acquisition
is accounted for as a loan charge-off. Any subsequent reduction in fair value is
recorded as a loss on other assets. Costs incurred to carry other real estate
are charged to expense. Other real estate owned totaled $31 at December 31, 1998
and $142 at December 31, 1997. There were no transfers of loans to other real
estate in 1997. Transfers of loans to other real estate were $163 and $15 in
1998 and 1996.
Per Share Amounts: Earnings per share is based on net income divided by the
following weighted average number of shares outstanding during the periods:
2,801,892 for 1998, 2,741,280 for 1997 and 2,673,019 for 1996. The Company had
no dilutive securities outstanding for any period presented. All earnings and
dividends per share disclosures have been restated to retroactively reflect
stock splits of 50%, 33-1/3% and 25% declared in 1998, 1997 and 1996
respectively.
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.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available-for-sale which are also recognized as separate
components of equity. The accounting standard that requires reporting
comprehensive income first applies for 1998, with prior information restated to
be comparable.
New Accounting Pronouncements: Beginning January 1, 2000, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This is not expected to
have a material effect but the effect will depend on derivative holdings when
this standard applies.
Mortgage loans originated in mortgage banking may be converted into
securities on occasion. A new accounting standard for 1999 will allow
classifying these securities as available-for-sale, trading, or
held-to-maturity, instead of the current requirements to classify as trading.
This is not expected to have a material effect but the effect will vary
depending on the level and designation of securitizations as well as on market
price movements.
Reclassifications: The consolidated financial statements for 1997 and 1996 have
been reclassified to conform with the presentation for 1998. Such
reclassifications had no effect on the net results of operations.
NOTE B - SECURITIES
The amortized cost and estimated fair value of securities as follows:
(dollars in thousands) Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $17,807 $ 336 $18,143
U.S. Government agency securities 4,057 67 $ (10) 4,114
Marketable equity securities 3,591 407 3,998
------- ------ ----- -------
Total securities $25,455 $ 810 $ (10) $26,255
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
U.S. Treasury securities $ 100 $ 100
U.S. Government agency securities 27,693 $ 431 $ (12) 28,112
Obligations of states and
political subdivisions 17,195 571 (21) 17,745
Mortgage-backed securities 381 1 (20) 362
------- ------ ----- -------
Total securities $45,369 $1,003 $ (53) $46,319
======= ====== ===== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
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 3,428 476 $ (43) 3,861
------- ------ ----- -------
Total securities $32,549 $ 863 $ (43) $33,369
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
U.S. Government agency securities $24,509 $ 126 $ (13) $24,622
Obligations of states 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
======= ====== ===== =======
Securities with a carrying value of approximately $55,851 at December 31,
1998 and $47,842 at December 31, 1997 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, 1998, 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 $10,314 $10,451 $ 2,855 $ 2,875
Due in one to five years 11,550 11,806 34,891 35,567
Due in five to ten years 4,371 4,613
Due after ten years 2,871 2,902
Mortgage-backed securities 381 362
------- ------- ------- -------
Total debt securities $21,864 $22,257 $45,369 $46,319
======= ======= ======= =======
Proceeds from the sale of equity securities in 1998 were $1,075 with gross
gains of $459 and gross losses of $17 realized. Proceeds from the sale of equity
securities in 1996 were $364 with gross losses of $28 realized. There were no
sales of debt and equity securities during 1997.
NOTE C - LOANS
Loans are comprised of the following at December 31:
(dollars in thousands) 1998 1997
---- ----
Real estate loans $163,650 $120,697
Commercial and industrial loans 96,116 78,124
Consumer loans 85,664 78,878
All other loans 1,700 2,568
-------- --------
Total Loans $347,130 $280,267
======== ========
NOTE D - ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses for
years ended December 31:
1998 1997 1996
---- ---- ----
Balance, beginning of year $3,390 $3,180 $2,481
Loans charged-off:
Real estate 110 39 5
Commercial 130 215 78
Consumer 1,433 961 673
------ ------ ------
Total loans charged-off 1,673 1,215 756
Recoveries of loans:
Real estate 40 1
Commercial 47 41 73
Consumer 178 138 54
------ ------ ------
Total recoveries of loans 265 180 127
Net loan charge-offs (1,408) (1,035) (629)
Provision charged to operations 2,295 1,245 1,328
------ ------ ------
Balance, end of year $4,277 $3,390 $3,180
====== ====== ======
Information regarding impaired loans is as follows:
1998 1997
---- ----
Balance of impaired loans $624 $430
==== ====
Portion of impaired loan balance for which
an allowance for credit losses is allocated $624 $430
==== ====
Portion of allowance for loan losses allocated
to the impaired loan balance $275 $200
==== ====
Average investment in impaired loans for the year $632 $440
==== ====
Interest on impaired loans was not material for years ending 1998 and 1997.
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment at December 31:
(dollars in thousands) 1998 1997
---- ----
Land $ 1,166 $ 1,166
Buildings 7,149 6,213
Furniture and equipment 5,594 4,549
------- -------
13,909 11,928
Less accumulated depreciation 5,549 4,602
------- -------
Total Premises and Equipment $ 8,360 $ 7,326
======= =======
The following is a summary of the future minimum lease payments for facilities
leased by the Company. Lease payments were $152 in 1998 and $84 in 1997.
1999 $ 165
2000 155
2001 146
2002 138
2003 111
Thereafter 664
------
$1,379
======
NOTE F - DEPOSITS
Following is a summary of interest-bearing deposits at December 31:
1998 1997
(dollars in thousands) ---- ----
NOW accounts $ 47,190 $ 29,439
Savings and Money Market 53,727 48,908
Time:
IRA accounts 30,870 28,102
Certificates of Deposit:
In denominations under $100,000 105,480 120,055
In denominations of $100,000 or more 44,089 42,433
-------- --------
Total time deposits 180,439 190,590
-------- --------
Total interest-bearing deposits $281,356 $268,937
======== ========
Following is a summary of total time deposits by remaining maturities at
December 31:
1998 1997
---- ----
Within one year $119,747 $139,918
From one to two years 35,851 33,881
From two to three years 9,247 8,560
From three to four years 3,980 3,226
From four to five years 10,308 3,670
Thereafter 1,306 1,335
-------- --------
Totals $180,439 $190,590
======== ========
NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Following is a summary of securities sold under agreements to repurchase at
December 31:
(dollars in thousands) 1998 1997
---- ----
Balance outstanding at period end $19,066 $12,831
------- -------
Weighted average interest rate at period end 3.96% 3.95%
------- -------
Average amount outstanding during the year $18,148 $11,352
------- -------
Approximate weighted average interest rate
during the year 3.77% 3.83%
------- -------
Maximum amount outstanding as of any month end $25,112 $16,768
------- -------
Securities underlying these agreements at
year-end were as follows:
Carrying value of securities $38,485 $28,336
------- -------
Fair Value $39,195 $28,634
------- -------
NOTE H - OTHER BORROWED FUNDS
(dollars in thousands)
Other borrowed funds at December 31, 1998 and 1997 are comprised of
advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal
Reserve Bank Notes. Pursuant to collateral agreements with the FHLB, advances
are secured by certain qualifying first mortgage loans and by FHLB stock which
total $71,570 and $3,343 at December 31, 1998. Fixed rate FHLB advances of
$37,729 mature through 2008 and have interest rates ranging from 4.88% to 6.15%.
In addition, overnight FHLB borrowings represent $9,985.
Promissory notes, issued primarily by the parent company, have fixed rates
of 5.15% to 7.00% and are due at various dates through a final maturity date of
May 29, 2002.
The following table is a summary of the scheduled principal payments for
these borrowings:
FHLB borrowings Promissory notes FRB Notes
--------------- ---------------- ---------
1999 $13,619 $7,889 $110
2000 10,939 12
2001 4,439 13
2002 5,336 5
2003 3,098
Thereafter 10,283
------- ------ ----
$47,714 $7,919 $110
======= ====== ====
NOTE I - INCOME TAXES
The provision for federal income taxes consists of the following components:
(dollars in thousands) 1998 1997 1996
---- ---- ----
Current tax expense $2,018 $1,461 $1,596
Deferred tax expense (benefit) (384) 15 (196)
------ ------ ------
Total federal income taxes $1,634 $1,476 $1,400
====== ====== ======
The sources of gross deferred tax assets and gross deferred tax liabilities
at December 31:
1998 1997
---- ----
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $1,136 $ 912
Deferred compensation 270 113
Other 60 54
Items giving rise to deferred tax liabilities:
Investment accretion (25) (94)
Depreciation (122) (94)
FHLB stock dividends (237) (167)
Unrealized gain on securities available-for-sale (241) (272)
Lease receivables (42) (56)
Other (13) (25)
------ ------
Net deferred tax asset $ 786 $ 371
====== ======
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:
1998 1997 1996
---- ---- ----
Statutory tax $1,960 $1,788 $1,615
Effect of nontaxable interest
and dividends (298) (242) (243)
Nondeductible interest expense 46 38 35
Insurance contracts (110) (99)
Other items 36 (9) (7)
------ ------ ------
Total federal income taxes $1,634 $1,476 $1,400
====== ====== ======
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.
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES(continued)
(dollars in thousands)
Following is a summary of such commitments at December 31:
(dollars in thousands)
Commitments to extend credit 1998 1997
Fixed rate $ 1,379 $ 423
Variable rate 36,611 29,955
Standby letters of credit 8,116 9,265
The interest rate on fixed rate commitments ranged from 6.875% to 17.90% at
December 31, 1998.
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, 1998, was approximately
$4,860.
NOTE K - RELATED PARTY TRANSACTIONS
(dollars in thousands)
Certain directors, executive officers and companies in which they are
affiliated were loan customers during 1998. A summary of activity on these
borrower relationships with aggregate debt greater than $60 is as follows:
Total loans at January 1, 1998 $10,658
New loans 9,197
Repayments (5,323)
Other changes (186)
-------
Total loans at December 31, 1998 $14,346
=======
Other changes include adjustment for loans applicable to one reporting period
that are excludable from the other reporting period. In addition, certain
directors, executive officers and companies in which they are affiliated were
recipients of promissory notes issued by the parent company in the amount of
$1,150.
NOTE L - EMPLOYEE BENEFITS
(dollars in thousands)
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 $111, $128 and $115 for
1998, 1997 and 1996.
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 132,017 and 91,386 at December
31, 1998 and 1997. In addition, the Bank made contributions to its ESOP Trust as
follows:
Years ended December 31
1998 1997 1996
---- ---- ----
Number of shares issued 5,450 6,500 5,500
===== ===== =====
Value of stock contributed $228 $237 $195
Cash contributed 19 35
---- ---- ----
Total charged to expense $228 $256 $230
==== ==== ====
In December 1996, life insurance contracts with a cash surrender value of
$5,210 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 supplemental retirement program in 1997. The
cost of providing the benefits to the participants of the supplemental
retirement program is expected to be offset by the earnings on the life
insurance contracts.
NOTE M - OTHER COMPREHENSIVE INCOME
(dollars in thousands)
Other comprehensive income components and related taxes for the years ended
December 31, are as follow:
1998 1997 1996
Unrealized holding gains (losses) on ---- ---- ----
available-for-sale securities $ 286 $ 198 $(169)
Less: Reclassification adjustment for
gains (losses) later recognized in income 442 (28)
----- ----- -----
Net unrealized gain (losses) (156) 198 (141)
Tax effect (53) 67 (48)
----- ----- -----
Other comprehensive income $(103) $ 131 $ (93)
===== ===== =====
NOTE N - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(dollars in thousands)
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
fair market value of commitments is not material at December 31, 1998 or 1997.
Life Insurance Cash Surrender Value: For life insurance cash surrender value,
the carrying amount is a reasonable estimate of fair value.
Deposit Liabilities: The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
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. 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:
1998 1997
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and short-term investments $ 13,512 $ 13,512 $ 11,804 $11,804
Securities 71,624 72,574 72,788 73,304
Loans 342,853 348,695 276,877 277,428
Accrued interest receivable 2,723 2,723 2,503 2,503
Life insurance cash surrender value 7,056 7,056 6,152 6,152
Financial liabilities:
Deposits (327,317) (328,516) (306,037) (306,976)
Securities sold under agreements
to repurchase (19,066) (19,066) (12,831) (12,831)
Other borrowed funds (55,743) (55,835) (19,479) (19,479)
Accrued interest payable (3,147) (3,147) (2,996) (2,996)
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.
NOTE O - REGULATORY MATTERS
The Company and subsidiary banks are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgements by regulators about components, risk
weightings, and other factors, and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial
statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year-end, consolidated actual capital levels (in thousands) and minimum
required levels for the Company and subsidiary banks 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
------ ----- ------ ----- ------ -----
1998
Total capital (to risk weighted assets)
Consolidated $44,436 13.8% $25,695 8.0% $32,118 10.0%
The Ohio Valley Bank Company $36,930 11.9% $24,803 8.0% $31,004 10.0%
The Jackson Savings Bank $ 2,814 39.7% $ 566 8.0% 708 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $40,421 12.6% $12,847 4.0% $19,271 6.0%
The Ohio Valley Bank Company $29,055 9.4% $12,402 4.0% $18,602 6.0%
The Jackson Savings Bank $ 2,642 37.3% $ 283 4.0% $ 425 6.0%
Tier 1 capital (to average assets)
Consolidated $40,421 9.3% $17,385 4.0% $21,731 5.0%
The Ohio Valley Bank Company $29,055 7.0% $16,627 4.0% $20,784 5.0%
The Jackson Savings Bank $ 2,642 16.8% $ 471 3.0% $ 786 5.0%
1997
Total capital (to risk weighted assets)
Consolidated $37,177 14.2% $20,901 8.0% $26,126 10.0%
The Ohio Valley Bank Company $33,619 13.0% $20,693 8.0% $25,867 10.0%
The Jackson Savings Bank $ 2,346 34.2% $ 550 8.0% $ 687 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $33,911 13.0% $10,450 4.0% $15,676 6.0%
The Ohio Valley Bank Company $26,429 10.2% $10,347 4.0% $15,520 6.0%
The Jackson Savings Bank $ 2,262 32.9% $ 275 4.0% $ 412 6.0%
Tier 1 capital (to average assets)
Consolidated $33,911 9.3% $14,577 4.0% $18,222 5.0%
The Ohio Valley Bank Company $26,429 7.3% $14,422 4.0% $18,027 5.0%
The Jackson Savings Bank $ 2,262 14.8% $ 458 3.0% $ 764 5.0%
The Company and subsidiary banks at year-end 1998 were categorized as well
capitalized. Management is not aware of any event or circumstances subsequent to
year-end that would change the Company's or subsidiary banks' capital structure.
Dividends paid by the subsidiaries are the primary source of funds available
to the Company for payment of dividends to shareholders and for other working
capital needs. The payment of dividends by the subsidiaries to the Company is
subject to restrictions by regulatory authorities. These restrictions generally
limit dividends to the current and prior two years retained earnings. At
December 31, 1998, approximately $4,314 of the subsidiaries' retained earnings
were available for dividends under these guidelines. In addition to these
restrictions, as a practical matter, dividend payments cannot reduce regulatory
capital levels below minimum regulatory guidelines. These restrictions do not
presently limit the Company from paying dividends at its historical level.
NOTE P - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(dollars in thousands)
Below is condensed financial information of Ohio Valley Banc Corp. In this
information, the parent's investment in subsidiaries is stated at cost plus
equity in undistributed earnings of the subsidiaries since acquisition. This
information should be read in conjunction with the consolidated financial
statements.
CONDENSED STATEMENTS OF CONDITION at December 31:
Assets 1998 1997
---- ----
Cash and cash equivalents $ 50 $ 50
Interest-bearing balances with subsidiaries 6,804 242
Investment in subsidiaries 33,534 29,620
Notes receivable - subsidiaries 8,321 6,639
Other assets 65 1,263
------- -------
Total assets $48,774 $37,814
======= =======
Liabilities
Notes Payable $ 7,878 $ 875
Other liabilities 216 $ 105
------- -------
Total liabilities 8,094 980
------- -------
Shareholders' Equity
Common Stock 2,818 1,876
Surplus 27,598 26,275
Retained Earnings 9,797 8,113
Net unrealized gain on available-for-sale-securities 467 570
------- -------
Total shareholders' equity 40,680 36,834
------- -------
Total liabilities and shareholders' equity $48,774 $37,814
======= =======
CONDENSED STATEMENTS OF INCOME
Years ended December 31:
1998 1997 1996
---- ---- ----
Income:
Interest on deposits $ 107 $ 48 $ 12
Interest on loans 54 70 12
Interest on notes 386 287
Other operating income 3
Dividends from bank subsidiary 1,000 1,000 6,000
Expenses:
Interest on notes 196 62
Operating expenses 181 105 87
------ ------ ------
Income before federal income taxes and equity
in undistributed earnings of subsidiaries 1,173 1,238 5,937
Income tax benefit (expense) (85) (80) 21
Equity in undistributed earnings of subsidiaries 3,042 2,624 (2,609)
------ ------ ------
Net Income $4,130 $3,782 $3,349
====== ====== ======
NOTE P - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
(dollars in thousands)
CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31: 1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income $4,130 $3,782 $3,349
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (3,042) (2,624) 2,609
Amortization 12 12
Change in other assets 1,198 (1,256) 21
Change in other liabilities 111 56
------ ------ ------
Net cash provided by operating activities 2,397 (30) 5,991
------ ------ ------
Cash flows from investing activities:
Purchase of long-term note from subsidiary (4,000)
Change in other short-term investments (4,434) (875) (300)
Change in subsidiary line of credit 1,750 (1,454) (310)
Change in interest-bearing deposits (6,562) 1,403 (1,645)
------ ------ ------
Net cash used in investing activities (9,246) (926) (6,255)
------ ------ ------
Cash flows from financing activities:
Change in other short-term borrowings 7,003 875
Cash dividends paid (1,506) (1,396) (1,283)
Cash paid in lieu of fractional shares in stock split (7) (11) (9)
Proceeds from issuance of common stock 1,359 1,488 1,090
------ ------ ------
Net cash used in financing activities 6,849 956 (202)
------ ------ ------
Cash and cash equivalents:
Change in cash and cash equivalents 0 0 (466)
Cash and cash equivalents at beginning of year 50 50 516
------ ------ ------
Cash and cash equivalents at end of year $ 50 $ 50 $ 50
====== ====== ======
NOTE Q - ACQUISITION
(dollars in thousands)
Effective December 15, 1998 Jackson Savings Bank, Jackson, Ohio was
acquired in a business combination accounted for as a pooling of interests. A
total of 74,167 shares of the Company's common stock were issued in exchange for
all of the outstanding shares of Jackson and Jackson became a wholly owned
subsidiary of the Company. The consolidated financial statements have been
restated to include the effect of Jackson for all periods presented based on the
historical amounts reported by Jackson. The following is a summary of the
separate results of operations of the Company and Jackson for the three years
ended December 31, 1998.
Years ended December 31:
1998 1997 1996
Net interest income
Company $18,988 $16,408 $14,840
Jackson 512 528 556
Combined $19,500 $16,936 $15,396
Net income
Company $ 3,788 $ 3,680 $ 3,166
Jackson 342 102 183
Combined $ 4,130 $ 3,782 $ 3,349
SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters Ended
1998 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Total interest income $8,181 $8,720 $8,981 $9,309
Total interest expense 3,683 3,839 4,027 4,142
Net interest income 4,498 4,881 4,954 5,167
Provision for loan losses 357 535 491 912
Net Income 967 994 1,004 1,165
Net income per share $ .35 $ .35 $ .36 $ .41
1997
Total interest income $7,435 $7,804 $8,025 $8,189
Total interest expense 3,451 3,619 3,694 3,753
Net interest income 3,984 4,185 4,331 4,436
Provision for loan losses 300 202 266 477
Net Income 810 934 962 1,076
Net income per share $ .30 $ .34 $ .35 $ .39
1996
Total interest income $6,663 $6,906 $7,183 $7,500
Total interest expense 3,156 3,104 3,226 3,370
Net interest income 3,507 3,802 3,957 4,130
Provision for loan losses 241 283 241 563
Net Income 771 846 886 846
Net income per share $ .29 $ .32 $ .33 $ .31
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, 1998 and 1997 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, 1998. 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, 1998 and 1997 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
February 4, 1999
SUMMARY OF COMMON STOCK DATA
OHIO VALLEY BANC CORP.
Years ended December 31, 1998 and 1997
INFORMATION AS TO STOCK PRICES AND DIVIDENDS: The market for the common stock of
the Company is not highly active and trading has historically been limited. On
February 9, 1996, the Company's common stock was established on NASDAQ
securities market under the symbol "OVBC". Prior to this date a limited market
was created in the first quarter of 1992 through the Ohio Company.
The following table shows bid and ask quotations for the Company's common
stock during 1998 and 1997. The range of market price is compiled from data
provided by the broker based on limited trading and have been restated for the
50% stock split in 1998 and the 33-1/3% stock split in 1997. The quotations are
inter-dealer prices, without retail markup, markdown, or commission, and may not
represent actual transactions.
1998 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $23.00 $27.66 $24.00 $28.83
Second Quarter 27.33 42.00 28.00 44.00
Third Quarter 40.00 40.50 41.00 43.00
Fourth Quarter 40.00 41.75 41.56 44.50
1997 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $17.37 $18.88 $18.00 $19.50
Second Quarter 18.88 23.17 19.50 25.83
Third Quarter 23.17 23.67 25.67 26.00
Fourth Quarter 23.33 24.67 24.67 26.00
Dividends per share 1998 1997
- ------------------- ---- ----
First Quarter $.13 $.13
Second Quarter .14 .13
Third Quarter .14 .13
Fourth Quarter .14 .13
Shown above is a table which reflects the dividends paid per share as
restated for the 50% stock split in 1998 and the 33-1/3% stock split in 1997 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, 1998
the number of holders of common stock was 1,600, an increase from 1,299
shareholders at December 31, 1997.
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.
RESULTS OF OPERATIONS:
SUMMARY
Ohio Valley Banc Corp achieved record earnings in 1998 of $4,130,000 an
increase of 9.2% from 1997's $3,782,000 which was up 12.9% from 1996. With these
earnings, net income per share increased to $1.47 from $1.38 in 1997, up 6.5%.
Net income per share was up 10.4% in 1997. Asset growth for 1998 was $68,360,000
or 18.0% which grew total assets to $447,448,000. The Company's return on assets
(ROA) declined slightly to 1.01% for 1998 compared to 1997's 1.02% but is up
from 1996's ROA of .98%. The Company's commitment to enhancing shareholder value
was demonstrated by the market value of your stock being up over 70.6% from 1997
which was up 37.5% from 1996. Return on equity (ROE) was 10.69% for 1998
compared to 10.98% for 1997 and 10.82% for 1996.
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. Changes in net interest income are measured by net interest margin
and net interest spread. Net interest margin is expressed as net interest income
divided by average interest-earning assets. Net interest spread is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities. Both of these are reported on
a taxable equivalent basis. Net interest margin is greater than net interest
spread due to the interest earned on interest-earning assets funded from
noninterest bearing funding sources, primarily demand deposits and stockholders'
equity. Following is a discussion of changes in interest-earning assets,
interest-bearing liabilities and the associated impact on interest income and
interest expense for the three years ending December 31, 1998. 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) expanded
$2,631,000 in 1998, an increase of 15.3% over the $17,251,000 earned in 1997.
Net interest income increased 9.9% in 1997 over 1996. The growth in net interest
income for 1998 and 1997 was attributable to a higher level of interest-earning
assets combined with a higher net interest margin.
Average earning assets grew by 10.1% during 1998 to reach $383,780,000.
In 1997, average earning assets grew 6.0% over 1996. Driving the growth in
earning assets was the growth in average loan balances. Average total loans
expanded $33,857,000 or 12.5% from 1997 and represent 79.6% of earning assets.
This compares to average loan growth of 9.1% for 1997 and loans representing
77.9% of earning assets. Management focuses on generating loan growth as this
portion of earning assets provides the greatest return to the Company. Average
securities declined from 22.3% of earning assets for 1996 to 18.6% in 1998. The
shift in earning assets to loans from securities was a strategy employed by
management to move a portion of maturing securities to loans to increase the
yield on earning assets which contributed to a higher net interest margin.
Although loans comprise a larger percentage of earning assets, management is
comfortable with the current level of loans based on collateral values, the
increase in the allowance for loan losses and the Company's well-capitalized
status. Management does not anticipate to continue the reallocation of
securities to loans in 1999 but by continuing to grow loans and maintaining the
securities portfolio the percentage of securities to earning assets may decline.
Securities have reached an approximate level which management has targeted which
will provide ample liquidity and cover pledging requirements.
Average interest-bearing liabilities increased $27,123,000 or 9.1%
between 1997 and 1998 and increased $21,200,000 or 7.7% between 1996 and 1997.
The composition of interest-bearing liabilities for 1998 has shifted away from
time deposits which represented 58.7% of interest-bearing liabilities in 1998
compared to 64.5% in 1997 and 62.8% in 1996. More emphasis has been placed on
other borrowed funds and repurchase agreements which have grown to comprise
13.9% of interest-bearing liabilities from 8.9% in 1997 and 6.2% in 1996. The
use of borrowed funds has been a cost-effective funding source for the Company's
positive loan growth. The average cost of borrowed funds for 1998 is 5.65%
compared to time deposits average cost of 5.73%. Furthermore, the total average
balance of NOW accounts, money markets and savings deposits increased
$10,039,000 from 1997 to 1998 reversing the decrease of $6,497,000 from 1996 to
1997. Due to a falling rate environment, Management preferred to grow deposits
in variable rate products instead of fixed rate time deposits. These balances
were influenced by more aggressive pricing on NOW and money market accounts
combined with a larger market area.
The net interest margin improved .23% to 5.18% in 1998 from 4.95% in
1997. This follows a .17% increase in the net interest margin in 1997.
Contributing to the improved net interest margin in 1998 was a gain in the net
interest spread of .20%. The yield on earning assets rose .16% compared to
funding costs decreasing .04%. The yield on interest-earning assets improved
with higher relative balances in loans combined with a .11% increase in loan
yields to reach 10.02%. Total funding costs decreased in relation to the cost of
borrowed funds declining .40% and time deposits comprising a smaller percentage
of interest-bearing liabilities. The impact of interest free funds on the net
interest margin increased from .73% in 1997 to .76% in 1998. The .03% increase
in the contribution of interest free funding sources combined with the .20%
increase in the net interest spread yielded the .23% increase in the net
interest margin. The 1997 increase in net interest margin was due to a .20% gain
in net interest spread with asset yields rising .42% versus funding costs
increasing .22%. The gain in net interest spread was partially offset by a
decrease of .03% from interest free funding sources. Management expects the net
interest margin to level off or even decline in 1999 based on balance sheet mix
stabilizing.
OTHER INCOME AND EXPENSE
Total other income, excluding securities gains and losses, increased
$458,000, a 24.6% gain over 1997. Service charges on deposit accounts
contributed an additional $181,000 in 1998 associated with the Company's
continued expansion into new markets. Additionally, other operating income
increased $257,000 with gains in loan service fees and commissions earned from
loan insurance sales. Total other income increased 28.5% from 1996 to 1997.
Contributing to 1997's additional income was the earnings from life insurance
contracts purchased mostly in the fourth quarter of 1996, which provided an
additional $320,000. 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 is expected to be offset by the tax preferenced earnings on the
life insurance contracts.
Total other expense increased $1,908,000 or 15.5% in 1998 and
$1,555,000 or 14.5% in 1997. The most significant expense in this category is
salary and employee benefits. From 1996 to 1998, management staffed two
full-service branches and four SuperBank offices for the Bank and one office for
Loan Central. Related to the growth in operations was the increase in the number
of full-time equivalent employees from 206 at year-end 1996 to 238 at year-end
1998. Salary and employee benefits increased $777,000 or 10.6% from 1997 to 1998
and increased $939,000 or 14.7% from 1996 to 1997. Associated with the new
offices was an increase in occupancy expense and furniture and equipment
expense. Increased costs are related to depreciation, rental property costs and
utilities. Investment in equipment to support growth and processing technology
also contributed to the increase. The return on this investment in technology
was reflected in data processing expense being down for 1997 and 1998. The
increase in other operating expenses over 1997 was related computer software
depreciation, merger related expenses associated with the acquisition of Jackson
Savings and general inflationary increases. 1997's increase in other operating
expense was impacted by a supplemental retirement program implemented for
directors which also will be offset by earnings on life insurance contracts.
YEAR 2000
In May of 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.
The Company's core software applications, which process loans and deposits, were
developed with the Year 2000 in mind. Nevertheless, in October 1998 the Company
tested its core hardware and software applications. Although review of the test
results are incomplete, no year 2000 problems have been identified as of
December 31, 1998.
The awareness and assessment phases of the Company's Year 2000 effort
are complete. Management estimates that 90% of renovations have been completed.
Ninety percent of the Company's testing has been completed. Management plans to
have all renovations and testing completed by March 31, 1999. Management
anticipates a total compliance cost of less than $100,000 and therefore such
costs will not materially effect the Company's results of operations, liquidity
and capital resources. As of December 31, 1998, the Company has spent
approximately $31,000 on its Year 2000 efforts.
The risks associated with the Company's Year 2000 compliance relate
primarily to its relationships with critical business partners, which include
service suppliers and customers, and their ability to effectively address Year
2000 issues. In an effort to mitigate such risk, the Company has attempted to
assess the Year 2000 efforts and preparedness of our significant customers and
service suppliers. The Company has formulated a Year 2000 contingency plan which
was approved by the Company's Board of Directors.
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. Maturing securities, have historically provided sufficient liquidity
such that management has not sold a debt security in several years.
The portfolio consists primarily of U.S. Treasury notes and U.S.
Government agencies which comprise approximately 70% of total securities. As a
result, the portfolio's exposure to credit risk is minimal. The weighted average
FTE yield on debt securities at year-end 1998 was 6.52% as compared to 6.64% at
year-end 1997. Given current reinvestment rates, the yield on securities will
decline in 1999 as higher yielding securities mature. 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
and does not contain any issues which would be classified as high risk
mortgage-backed securities.
LOANS
In 1998, total loans increased $66,863,000 or 23.9% to reach
$347,130,000. The largest contributor was residential mortgage loans which
experienced tremendous growth of $42,953,000 or 35.9% driven by low interest
rates. Furthermore, a majority of the mortgage loan growth occurred in newer
markets outside of Gallia county. The Company generally originates real estate
loans for its own portfolio, as very few loans are sold on the secondary market.
Commercial loans increased $17,992,000 or 23.0%. Consumer loans grew $6,786,000
representing a 8.6% gain. A portion of the consumer loans were originated
through indirect lending, primarily from area automobile dealers, and are
subject to the same underwriting as our regular loans. 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 quarterly
based on several factors including, but not limited to, general economic
conditions, loan portfolio composition, prior loan loss experience, and
management's estimate of future probable losses. Actual losses on loans are
reflected as reductions in the reserve and are referred to as charge-offs. The
amount of the provision for loan losses charged to operating expenses is the
amount necessary, in management's opinion, to maintain the allowance for loan
losses at an adequate level. The allowance required is primarily a function of
the relative quality of the loans in the loan portfolio, the mix of loans in the
portfolio and the rate of growth of outstanding loans.
The ratio of net charge-offs to average total loans at December 31,
1998 was .46% up from .38% at December 31, 1997 due mostly to higher losses in
the consumer loan area. Net charge-offs in both the real estate and commercial
loan areas were relatively low, which represents the overall quality of these
segments of the loan portfolio. Nonperforming loans, which include nonaccrual
loans and accruing loans past due 90 days or more, are returned to performing
status when the loan is brought current and has performed in accordance with
contractual terms. Nonperforming loans were approximately $3,087,000 or .89% of
outstanding balances at December 31, 1998 compared to $4,626,000 or 1.65% of
outstanding balances at the end of 1997. The decrease nonperforming loans was
primarily attributable to loans that were 90 days or more past due.
For 1998, provision expense was up $1,050,000 compared to the provision
expense for 1997. The increase in provision expense was associated with the
exceptional loan growth in 1998 coupled with the increase in net charge offs. As
a percentage of total loans, the allowance for loan losses at December 31, 1998
was 1.23% versus 1.21% at December 31, 1997. Management believes the allowance
is adequate to absorb inherent losses in the current portfolio and anticipates
that it will continue its provision to the allowance for loan losses at its
current level for the foreseeable future.
DEPOSITS
Interest-earning assets are funded primarily by core deposits. The
accompanying table IV shows the composition of total deposits as of December 31,
1998. Total deposits grew $21,280,000 or 7.0% to reach $327,317,000 by year-end
1998. Leading the growth in deposits was NOW accounts with an increase of
$17,751,000. The Company's new Gold Club product fueled this growth.
Furthermore, noninterest-bearing deposits increased $8,861,000 and money market
accounts increased $4,648,000. Certificates of deposit are down $12,919,00 due
to the utilization of borrowed funds. With the expansion in new and current
markets, management expects continued growth in deposits in 1999.
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, 1998, the balance of FHLB advances totaled $47,714,000 compared to
$18,553,000 at December 31, 1997. FHLB borrowings have two distinct advantages:
they are less expensive than deposits for comparable terms and they are not
subject to early redemption. Management will continue to evaluate borrowings
from the FHLB as an alternative funding source. Promissory notes are primarily
associated with funding loans at Loan Central and were issued with terms of one
year of less.
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 $40,680,000 at December 31, 1998, compared to
$36,834,000 at December 31, 1997, which represents growth of 10.4%. All of the
capital ratios exceeded the regulatory minimum guidelines as identified in Note
O "Regulatory Matters".
Cash dividends paid of $1,506,000 for 1998 represents a 7.9% increase
over the cash dividends paid during 1997. The increase in cash dividends paid is
due to the additional shares outstanding during 1998 which were not outstanding
during 1997 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 1998, the Company issued 31,196 shares under the dividend
reinvestment and stock purchase plan. At December 31, 1998, approximately 68% of
the shareholders were enrolled in the dividend reinvestment plan. Members of the
plan invested $1,131,000 in 1998 which represents 75% of year-to-date dividends
paid.
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. Interest rate risk ("IRR") is the
exposure of the Company's financial condition to adverse movements in interest
rates. Accepting this risk can be an important source of profitability, but
excessive levels of IRR can threaten the Company's earnings and capital. 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 Company's asset and liability committee monitors the rate
sensitivity of the balance sheet weekly through parameters established by the
Board of Directors. The committee uses an interest rate sensitivity gap analysis
prepared quarterly to monitor the relationship between the maturity and
repricing of its interest-earning assets and interest-bearing liabilities.
Interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets and interest-bearing liabilities maturing or repricing
within a specified time period. A gap position is considered positive when the
amount of interest sensitive assets exceed the amount of interest sensitive
liabilities, and is considered negative when the amount interest sensitive
liabilities exceed the amount of interest sensitive assets. Generally, during a
period of rising interest rates, a negative gap would adversely affect net
interest income, while a positive gap would result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would result in an increase in net interest income, while a
positive gap would negatively affect net interest income. This analysis assumes
that interest rate changes for interest-earning assets and interest-bearing
liabilities are of the same magnitude and velocity, whereas actual interest rate
changes generally differ in magnitude and velocity.
The Company's exposure to interest rate risk is primarily managed
through the selection of the type and repricing characteristics of
interest-earning assets and interest-bearing liabilities. Management can
influence the Company's gap position by offering fixed or variable rate
products, by changing the terms of new loans, investments and time deposits, or
by selling existing assets or repaying certain liabilities. The Company's
ability to manage its gap position can be challenged by customer preferences
which may not meet the Company's goals. The FHLB assists in funding
interest-earning assets by providing advances with similar repricing
characteristics as many of the loans offered by the Company.
Table VIII provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
repricing opportunities strictly by maturity date without regard for repricing
dates for variable rate products. Noninterest-bearing checking deposits assume
an annual decay rate of 13% and savings and interest-bearing checking accounts
assume an annual decay rate of 21% based on the Company's historical experience.
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
$26,255,000 in securities as available for sale at December 31, 1998. In
addition, Federal Home Loan Bank in Cincinnati offers advances to the Bank which
further enhances the Bank's ability to meet liquidity demands. 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 deflation are generally not considered.
In management's opinion, changes in interest rates affect the financial
institution to a far greater degree than changes in the inflation rate. While
interest rates are greatly influenced by changes in the inflation rate, they do
not change at the same rate or in the same magnitude as the inflation rate.
Rather, interest rate volatility is based on changes in the expected rate of
inflation, as well as monetary and fiscal policies. A financial institution's
ability to be relatively unaffected by changes in interest rates is a good
indicator of its capability to perform in today's volatile economic environment.
The Company seeks to insulate itself from interest rate volatility by ensuring
that rate sensitive assets and rate sensitive liabilities respond to changes in
interest rates in a similar time frame and to a similar degree.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward looking statements'
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934 and as defined in the Private Securities
Litigation Reform Act of 1995. Such statements are often, but not always,
identified by the use of such words as "believes," "anticipates," "expects," and
similar expressions. Such statements involve various important assumptions,
risks, uncertainties, and other factors, many of which are beyond our control,
that could cause actual results to differ materially from those expressed in
such forward looking statements. These factors include, but are not limited to:
changes in political, economic or other factors such as inflation rates,
recessionary or expansive trends, and taxes; competitive pressures; fluctuations
in interest rates; the level of defaults and prepayment on loans made by the
Company; unanticipated litigation, claims, or assessments; fluctuations in the
cost of obtaining funds to make loans; and regulatory changes. Readers are
cautioned not to place undue reliance on such forward looking statements, which
speak only as of the date hereof. The Company undertakes no obligation and
disclaims any intention to republish revised or updated forward looking
statements, whether as a result of new information, unanticipated future events
or otherwise.
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I
December 31
------------------------------------------------------------------------------------
1998 1997 1996
(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 $ 3,079 $ 176 5.71% $ 3,835 $ 194 5.06% $ 3,708 $ 192 5.17%
with banks
Federal funds sold 3,910 214 5.47 3,728 202 5.40 2,999 158 5.27
Securities:
Taxable 55,092 3,457 6.27 56,768 3,564 6.28 60,898 3,602 5.91
Tax exempt 16,307 1,136 6.97 12,700 911 7.17 12,301 889 7.23
Loans 305,392 30,590 10.02 271,535 26,897 9.91 248,833 23,715 9.53
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
earning assets 383,780 35,573 9.27% 348,566 31,768 9.11% 328,739 28,556 8.69%
Noninterest-earning assets:
Cash and due from banks 9,268 7,968 7,462
Other nonearning assets 19,065 16,322 9,168
Allowance for loan losses (3,631) (3,304) (2,781)
-------- -------- --------
Total noninterest-
earning assets 24,702 20,986 13,849
Total assets $408,482 $369,552 $342,588
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 36,152 1,222 3.38% $ 31,568 1,048 3.32% $ 32,238 1,091 3.38%
Savings and Money Market 52,671 1,381 2.62 47,216 1,181 2.50 53,043 1,329 2.50
Time deposits 189,955 10,886 5.73 191,317 10,934 5.72 173,060 9,672 5.59
Repurchase agreements 18,148 685 3.77 11,352 435 3.83 9,813 339 3.46
Other borrowed money 26,832 1,517 5.65 15,182 919 6.05 7,281 425 5.84
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 323,758 15,691 4.85% 296,635 14,517 4.89% 275,435 12,856 4.67%
Noninterest-bearing liabilities:
Demand deposit accounts 40,715 34,195 32,449
Other liabilities 5,370 4,273 3,746
-------- -------- ------
Total noninterest-
bearing liabilities 46,085 38,468 36,195
Shareholders' equity 38,639 34,449 30,958
-------- --------
Total liabilities and
shareholders' equity $408,482 $369,552 $342,588
======== ======== ========
Net interest earnings $19,882 $17,251 $15,700
======= ======= =======
Net interest earnings as a percent
of interest-earning assets 5.18% 4.95% 4.78%
----- ----- -----
Net interest rate spread 4.42% 4.22% 4.02%
----- ----- -----
Average interest-bearing liabilities
to average earning assets 84.36% 85.10% 83.79%
===== ===== =====
Fully taxable equivalent yields are calculated assuming a 34% tax rate, net of
nondeductible interest expense. Average balances are computed on an average
daily basis. The average balance for available-for-sale securities includes the
market value adjustment. However, the calculated yield is based on the
securities' amortized cost. Average loan balances include nonaccruing loans.
Loan income includes cash received on nonaccruing loans.
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II
1998 1997
----------------------------- ----------------------------
(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 $ (41) $ 23 $ (18) $ 6 $ (4) $ 2
Federal funds sold 10 2 12 40 4 44
Securities:
Taxable (105) (2) (107) (252) 214 (38)
Tax exempt 251 (26) 225 29 (7) 22
Loans 3,389 304 3,693 2,222 960 3,182
------- ------- ------- ------- ------- -------
Total interest income 3,504 301 3,805 2,045 1,167 3,212
INTEREST EXPENSE
- ----------------
NOW accounts 155 19 174 (22) (21) (43)
Savings and Money Market 141 59 200 (146) (2) (148)
Time deposits (79) 31 (48) 1,039 223 1,262
Repurchase agreements 257 (7) 250 57 39 96
Other borrowed money 662 (64) 598 478 16 494
------- ------- ------- ------- ------- -------
Total interest expense 1,136 38 1,174 1,406 255 1,661
------- ------- ------- ------- ------- -------
Net interest earnings $ 2,368 $ 263 $ 2,631 $ 639 $ 912 $ 1,551
======= ======= ======= ======= ======= =======
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each. Fully taxable equivalent yield assumes a 34% tax
rate, net of related nondeductible interest expense.
SECURITIES
Table III
MATURING
---------------------------------------------------------------------------
As of December 31, 1998 Within After One but After Five but
(dollars in thousands) One Year Within Five Years Within Ten Years After Ten Years
-------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Treasury securities $10,551 6.81% $ 7,692 6.35%
Obligations of U.S. Government
agency securities 31,807 6.02%
Obligations of states and
political subdivisions 2,756 6.69% 7,197 7.39% $4,371 7.82% $2,871 7.09%
Mortgage-backed securities 7 8.00% 350 6.13% 24 6.28%
------- ---- ------- ---- ------ ---- ------ ----
Total debt securiities $13,307 6.78% $46,703 6.29% $4,721 7.70% $2,895 7.09%
======= ==== ======= ==== ====== ==== ====== ====
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)
1998 1997 1996
---- ---- ----
Interest-bearing deposits:
NOW accounts $ 47,190 $ 29,439 $ 28,493
Money Market 20,103 15,455 16,115
Savings accounts 33,624 33,453 34,628
IRA accounts 30,870 28,102 28,044
Certificates of Deposit 149,569 162,488 152,954
-------- -------- --------
281,356 268,937 260,234
Noninterest-bearing deposits:
Demand deposits 45,961 37,100 34,091
-------- -------- --------
Total deposits $327,317 $306,037 $294,325
======== ======== ========
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Table V Years Ended December 31
(dollars in thousands) 1998 1997 1996 1995 1994
- ---------------------- ---- ---- ---- ---- ----
Commercial loans $1,132 $ 879 $ 887 $ 328 $ 628
Percentage of loans to total loans 28.18% 28.79% 29.08% 20.06% 23.38%
Real estate loans 264 218 338 328 213
Percentage of loans to total loans 47.14% 43.07% 42.56% 50.49% 50.17%
Consumer loans 1,360 949 799 597 544
Percentage of loans to total loans 24.68% 28.14% 28.36% 29.45% 26.45%
Unallocated 1,521 1,344 1,156 1,228 876
------- ------- ------- ------- -------
Allowance for Loan Losses $4,277 $3,390 $3,180 $2,481 $2,261
======= ======= ======= ======= =======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Ratio of net charge-offs
to average loans .46% .38% .25% .19% .12%
======= ======= ======= ======= =======
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) 1998 1997 1996 1995 1994
- ---------------------- ---- ---- ---- ---- ----
Impaired loans $ 624 $ 430 $ 449 $ 579
Past due-90 days or more and
still accruing 2,106 3,607 2,707 2,785 $3,096
Nonaccrual 981 1,019 737 963 473
Accruing loans past due 90
days or more to total loans .61% 1.29% 1.02% 1.23% 1.47%
Nonaccrual loans as a % of
total loans .28% .36% .28% .42% .22%
Impaired loans as a % of total loans .18% .15% .17% .25%
Allowance for loans losses as a
% of total loans 1.23% 1.21% 1.20% 1.09% 1.07%
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 1998, the Company did not recognize any interest income on impaired
loans. Loans not included above that management feels have loss potential total
approximately $275. 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, 1998 Maturing/Repricing
(dollars in thousands)
Within After One but
One Year Within Five Years After Five Years Total
-------- ----------------- ---------------- -----
Commercial loans and other $ 54,776 $12,510 $30,530 $ 97,816
Real estate loans 42,187 33,850 87,613 163,650
Consumer loans 22,231 52,770 10,663 85,664
-------- ------- ------- --------
Total loans $119,194 $99,130 128,806 $347,130
======== ======= ======= ========
Loans maturing or repricing after one year with:
Variable interest rates $ 55,005
Fixed interest rates 172,931
--------
Total $227,936
========
RATE SENSITIVITY ANALYSIS
Table VIII
(dollars in thousands)
As of December 31, 1998 Principal Amount Maturing in:
There- Fair Value
1999 2000 2001 2002 2003 after Total 12/31/98
Rate-Sensitive Assets:
Fixed interest rate loans $ 11,262 $ 7,926 $ 15,369 $ 20,251 $ 16,367 $113,018 $184,193 $189,679
Average interest rate 9.52% 11.78% 11.96% 11.25% 10.12% 8.21% 9.26%
Variable interest rate loans $ 31,588 $ 2,825 $ 5,995 $ 5,886 $ 4,218 $112,425 $162,937 $163,293
Average interest rate 9.87% 9.34% 9.24% 8.61% 8.39% 7.89% 8.39%
Fixed interest rate securities $ 13,169 $ 8,352 $ 10,317 $ 11,382 $ 16,389 $ 11,215 $ 70,824 $ 72,574
Average interest rate 6.88% 6.44% 6.40% 6.24% 6.20% 7.33% 6.57%
Other interest-bearing assets $ 795 $ 795 $ 795
Average interest rate 4.78% 4.78%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 5,515 $ 5,258 $ 4,223 $ 3,716 $ 3,270 $ 23,979 $ 45,961 $ 45,961
Savings & Interest-bearing checking $ 15,908 $ 12,941 $ 10,593 $ 8,726 $ 7,235 $ 45,514 $100,917 $100,917
Average interest rate 3.02% 3.06% 3.09% 3.13% 3.17% 3.38% 3.21%
Time deposits $119,747 $ 35,851 $ 9,247 $ 3,980 $ 10,308 $ 1,306 $180,439 $181,638
Average interest rate 5.43% 5.53% 5.70% 6.41% 6.00% 7.30% 5.53%
Fixed interest rate borrowings $ 11,622 $ 10,939 $ 4,439 $ 5,336 $ 3,098 $ 10,324 $ 45,758 $ 45,850
Average interest rate 5.48% 5.35% 5.55% 5.42% 5.71% 5.37% 5.44%
Variable interest rate borrowings $ 29,051 $ 29,051 $ 29,051
Average interest rate 4.58% 4.58%
KEY RATIOS
Table IX
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Return on average assets 1.01% 1.02% .98% .88% .79%
Return on average equity 10.69% 10.98% 10.82% 10.53% 10.04%
Dividend payout ratio 37.13% 37.81% 39.53% 41.59% 44.37%
Average equity to
average assets 9.46% 9.32% 9.04% 8.33% 7.90%