UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
SEPTEMBER 30, 1999
Commission file number: 0-20914
Ohio Valley Banc Corp.
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(Exact name of Registrant as specified in its charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
31-1359191
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(I.R.S. Employer Identification Number)
420 Third Avenue. Gallipolis, Ohio 45631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 446-2631
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of the issuers classes of
commom stock, as of the latest practicable date.
Common stock, $1.00 stated value Outstanding at October 29, 1999
3,525,754 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10-01 of Regulation
S-X is included in this Form 10Q as referenced below:
Consolidated Balance Sheets...................................... 1
Consolidated Statements of Income................................ 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity.......................................... 3
Condensed Consolidated Statements of Cash Flows.................. 4
Notes to the Consolidated Financial Statements................... 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk.......................................... 15
Part II - Other Information
Other Information and Signatures................................. 16
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30,
1999 December 31,
(unaudited) 1998
------------ ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 14,616 $ 12,342
Federal funds sold 5,975 375
------------ ------------
Total cash and cash equivalents 20,591 12,717
Interest-bearing balances with banks 494 795
Securities available-for-sale 57,134 26,255
Securities held-to-maturity 16,950 45,369
Total loans 398,067 347,130
Allowance for loan losses (4,880) (4,277)
------------ ------------
Net loans 393,187 342,853
Premises and equipment, net 9,990 8,360
Accrued interest receivable 3,126 2,723
Intangible assets 1,636
Other assets 9,434 8,376
------------ ------------
Total assets $ 512,542 $ 447,448
============ ============
LIABILITIES
Noninterest-bearing deposits $ 46,161 $ 45,961
Interest-bearing deposits 351,084 281,356
------------ ------------
Total deposits 397,245 327,317
Securities sold under agreements to repurchase 13,216 19,066
Other borrowed funds 50,988 55,743
Accrued liabilities 8,903 4,642
------------ ------------
Total liabilities 470,352 406,768
------------ ------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 3,531,343 shares issued and
3,525,754 shares outstanding at September 30,
1999 and 2,818,413 shares issued and outstanding
at December 31, 1998) 3,531 2,818
Surplus 27,893 27,598
Retained earnings 10,963 9,797
Net unrealized gain (loss) on available-for-sale
securities (8) 467
Treasury stock (5,589 shares, at cost) (189)
------------ ------------
Total shareholders' equity 42,190 40,680
------------ ------------
Total liabilities and
shareholders' equity $ 512,542 $ 447,448
============ ============
See notes to the consolidated financial statements.
1
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
Interest income:
Interest and fees on loans $ 9,097 $ 7,753 $26,194 $22,349
Interest on taxable securities 813 847 2,366 2,428
Interest on nontaxable securities 211 213 625 579
Dividends 74 62 217 182
Other interest 19 106 139 344
-------- -------- -------- --------
Total interest income 10,214 8,981 29,541 25,882
Interest expense:
Interest on deposits 3,933 3,405 11,359 10,049
Interest on repurchase agreements 132 226 339 494
Interest on other borrowed funds 700 396 2,001 1,007
-------- -------- -------- --------
Total interest expense 4,765 4,027 13,699 11,550
-------- -------- -------- --------
Net interest income 5,449 4,954 15,842 14,332
Provision for loan losses 438 491 1,442 1,383
-------- -------- -------- --------
Net interest income after provision 5,011 4,463 14,400 12,949
Other income:
Service charges on deposit accounts 328 254 883 679
Trust division income 57 54 172 160
Other operating income 273 255 858 733
Net realized gain (loss) on sale
of available-for-sale securities 63
-------- -------- -------- --------
Total other income 658 563 1,976 1,572
Other expense:
Salaries and employee benefits 2,380 2,042 6,711 5,845
Occupancy expense 253 216 736 528
Furniture and equipment expense 292 245 797 650
Data processing expense 117 98 329 305
Other operating expense 1,108 1,050 3,272 3,091
-------- -------- -------- --------
Total other expense 4,150 3,651 11,845 10,419
-------- -------- -------- --------
Income before income taxes 1,519 1,375 4,531 4,102
Provision for income taxes 422 371 1,260 1,137
-------- -------- -------- --------
NET INCOME $ 1,097 $ 1,004 $ 3,271 $ 2,965
======== ======== ======== ========
Earnings per share $ 0.31 $ 0.29 $ 0.93 $ 0.85
======== ======== ======== ========
See notes to the consolidated financial statements.
2
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
Balance at beginning of period $41,797 $38,789 $40,680 $36,834
Comprehensive income:
Net income 1,097 1,004 3,271 2,965
Net change in unrealized gain on
available-for-sale securities (21) 185 (475) 175
-------- -------- -------- --------
Total comprehensive income 1,076 1,189 2,796 3,140
Proceeds from issuance of common
stock through the dividend
reinvestment plan 387 301 1,139
Cash paid in lieu of fractional shares
in stock split (15) (7)
Cash dividends (494) (382) (1,383) (1,123)
Shares acquired for treasury (189) (189)
-------- -------- -------- --------
Balance at end of period $42,190 $39,983 $42,190 $39,983
======== ======== ======== ========
See notes to the consolidated financial statements.
3
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands, except per share data)
Nine months ended September 30,
1999 1998
------------ ------------
Net cash from operating activities $ 7,118 $ 6,337
Investing activities
Proceeds from maturities of
securities available-for-sale 6,730 7,000
Purchases of securities available-
for-sale (10,494) (999)
Proceeds from maturities of
securities held-to-maturity 1,874 12,034
Purchase of securities held-to-maturity (1,310) (17,749)
Proceeds from sale of equity securities 64
Change in interest-bearing deposits
in other banks 301 (23)
Net increase in loans (51,776) (42,323)
Purchase of premises and equipment, net (2,450) (1,743)
Purchases of insurance contracts (220) (580)
------------ ------------
Net cash from investing activities (57,281) (44,383)
Financing activities
Change in deposits 69,928 14,609
Cash dividends (1,383) (1,123)
Cash paid in lieu of fractional shares
in stock split (15) (7)
Proceeds from issuance of common stock 301 1,139
Purchases of treasury stock (189)
Change in securities sold under
agreements to repurchase (5,850) 8,780
Proceeds from long-term borrowings 4,500 20,164
Repayment of long-term borrowings (3,737) (8,354)
Change in other short-term borrowings (5,518) 3,690
------------ ------------
Net cash from financing activities 58,037 38,898
------------ ------------
Change in cash and cash equivalents 7,874 852
Cash and cash equivalents at beginning
of year 12,717 7,806
------------ -------------
Cash and cash equivalents at September 30, $ 20,591 $ 8,658
============ =============
See notes to the consolidated financial statements.
4
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Ohio
Valley Banc Corp. and its wholly owned subsidiaries The Ohio Valley Bank
Company, Jackson Savings Bank and Loan Central, Inc. All material intercompany
accounts and transactions have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of Management,
are necessary to present fairly the consolidated financial position of Ohio
Valley Banc Corp. at September 30, 1999, and its results of operations and cash
flows for the periods presented. The accompanying consolidated financial
statements do not purport to contain all the necessary financial disclosures
required by generally accepted accounting principles that might otherwise be
necessary in the circumstances. The Annual Report for Ohio Valley Banc Corp. for
the year ended December 31, 1998, contains consolidated financial statements and
related notes which should be read in conjunction with the accompanying
consolidated financial statements.
The provision for income taxes is based upon the effective income tax rate
expected to be applicable for the entire year.
For consolidated financial statement classification and cash flow reporting
purposes, cash and cash equivalents include cash on hand, noninterest-bearing
deposits with banks and federal funds sold. For the nine months ended September
30, 1999 and 1998, Ohio Valley Banc Corp. paid interest in the amount of 12,992
and $11,404, respectively. For the nine months ended September 30, 1999 and
1998, Ohio Valley Banc Corp. paid income taxes of $1,505 and $1,292,
respectively.
Earnings per share is computed based on the weighted average shares outstanding
during the period. For the nine months ended September 30, 1999 and 1998,
weighted average shares outstanding were 3,529,410 and 3,497,233, respectively.
On April 7, 1999, the Board of Directors declared a five for four stock split,
effected in the form of a stock dividend, to shareholders of record on April 19,
1999. The stock split was recorded by transferring from retained earnings an
amount equal to the stated value of the shares issued. Earnings and cash
dividends per share amounts have been retroactively adjusted to reflect the
effect of the stock split.
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income". Under this new accounting standard,
comprehensive income is now reported for all periods. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on securities
available-for-sale.
The Company utilized Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and reclassified
U.S. Government agency securities with an amortized cost of $27,676 from
held-to-maturity to available-for-sale. The securities were transferred on April
14, 1999 with management's intention of providing greater flexibility in meeting
customer and asset/liability needs.
(Continued)
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the securities, as presented in the consolidated balance sheet are as
follows:
September 30, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 11,293 $ 86 $ 11,379
U.S. Government agency
securities 39,400 50 $ (327) 39,123
Mortgage-backed securities 2,370 (87) 2,283
Marketable equity
securities 4,083 266 4,349
------------ ---------- ---------- ------------
Total securities $ 57,146 $ 402 $ (414) $ 57,134
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 16,619 $ 240 $ (166) $ 16,693
Mortgage-backed securities 331 1 (23) 309
------------ ---------- ---------- ------------
Total securities $ 16,950 $ 241 $ (189) $ 17,002
============ ========== ========== ============
December 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
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 state 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
============ ========== ========== ============
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at September 30,
1999, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain borrowers may have the right to call
or prepay the debt obligations prior to their contractual maturities.
Available-for-Sale Held-to-Maturity
--------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Debt securities:
Due in one year
or less $ 7,806 $ 7,844 $ 2,098 $ 2,103
Due in one to
five years 42,887 42,658 7,689 7,835
Due in five to
ten years 4,443 4,484
Due after ten years 2,389 2,270
Mortgage-backed sec. 2,370 2,283 331 310
------------ ------------ ------------ ------------
Total debt
securities $ 53,063 $ 52,785 $ 16,950 $ 17,002
============ ============ ============ ============
Gains and losses on the sale of securities are determined using the specific
identification method. Net gains on the sale of equity securities during the
first nine months of 1999 were $63. There were no sales of debt securities
during the first nine months of 1999 and no sales of debt and equity securities
during the first nine months of 1998.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
September 30, December 31,
1999 1998
------------ ------------
Real estate loans $ 192,852 $ 163,650
Commercial and industrial loans 116,921 96,116
Consumer loans 87,137 85,664
Other loans 1,157 1,700
------------ ------------
$ 398,067 $ 347,130
============ ============
At September 30, 1999 and December 31, 1998, loans on nonaccrual status were
approximately $2,046 and $981, respectively. Loans past due more than 90 days
and still accruing at September 30, 1999 and December 31, 1998 were $3,015 and
$2,106, respectively. Other real estate owned at September 30, 1999 and December
31, 1998 was unchanged at $31 .
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the nine months ended
September 30 is as follows:
1999 1998
------------ ------------
Balance - January 1, $ 4,277 $ 3,290
Loans charged off:
Real estate 28 97
Commercial 113 88
Consumer 878 1,011
------------ ------------
Total loans charged off 1,019 1,196
Recoveries of loans:
Real estate 15 40
Commercial 4 46
Consumer 161 122
------------ -----------
Total recoveries 180 208
Net loan charge-offs (839) (988)
Provision charged to operations 1,442 1,383
------------ ------------
Balance - September 30, $ 4,880 $ 3,685
============ ============
Information regarding impaired loans: September 30, December 31,
1999 1998
------------ ------------
Balance of impaired loans $ 417 $ 624
============ ============
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 417 $ 624
============ ============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 200 $ 275
============ ============
Average investment in impaired
loans for the year $ 417 $ 632
============ ============
Interest on impaired loans was not material for the periods ended September 30,
1999 and December 31, 1998.
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the central and southeastern
areas of Ohio as well as the Mason and Kanawha counties of West Virginia.
Approximately 7.11% of total loans were unsecured at September 30, 1999 as
compared to 8.04% at December 31, 1998.
The Corporation is a party to financial instruments with off-balance sheet risk.
These instruments are required in the normal course of business to meet the
financial needs of its customers. The contract or notional amounts of these
instruments are not included in the consolidated financial statements. At
September 30, 1999, the contract or notional amounts of these instruments, which
primarily include commitments to extend credit and standby letters of credit and
financial guarantees, totaled approximately $57,637 as compared to $46,106 at
December 31, 1998.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at September 30, 1999 and December 31, 1998 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 $57,749 and $3,824 at September 30, 1999. Fixed rate FHLB advances of
$36,000 mature through 2008 and have interest rates ranging from 4.88% to 6.15%.
In addition, variable rate FHLB borrowings represent $2,500.
Promissory notes, issued primarily by the parent company, have fixed rates of
5.25% to 7.00% and are due at various dates through a final maturity date of May
29, 2002.
Scheduled principal payments over the next five years are to be:
FHLB borrowings Promissory notes FRB Notes
--------------- ---------------- ---------
1999 $ 102 $ 1,568 $ 8,500
2000 14,119 2,402
2001 5,615 13
2002 5,283 5
2003 3,098
Thereafter 10,283
--------------- ---------------- ---------
$ 38,500 $ 3,988 $ 8,500
=============== ================ =========
(Continued)
9
OHIO VALLEY BANC CORP
(dollars in thousands, except per share data)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
Valley Banc Corp. at September 30, 1999, compared to December 31, 1998, and the
consolidated results of operations for the year-to-date and quarterly periods
ending September 30, 1999, compared to the same periods in 1998. The purpose of
this discussion is to provide the reader a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes included in
this Form 10-Q.
The Registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities which
would have such effect if implemented.
On May 3, 1999, the Company entered into a purchase agreement to acquire two
West Virginia branches of Huntington National Bank. These offices are the Milton
office, located at 280 East Main Street, Milton, and the Barboursville office,
located in the Krogers Supermarket at 5636 U.S. Route 60 East, Barboursville.
The purchase, having been approved by the appropriate regulatory authorities,
was completed in the third quarter of 1999 and is expected to expand the
Company's banking activities in West Virginia.
Management will continue to grow into new markets by establishing three
Superbanks in Wal-Mart stores. Two branches will be located in West Virginia,
one in Huntington and one in South Charleston. The third branch will be located
in South Point, Ohio. Management expects these offices to commence operations in
the fourth quarter of 1999.
FINANCIAL CONDITION
The consolidated total assets of Ohio Valley Banc Corp. increased $65,094 or
14.5% to reach $512,542 at September 30, 1999. The contributing factor to this
growth in assets was from loans which grew $50,937. Loans were funded by growth
in deposits of $69,928 or 21.4%, of which a portion was used to reduce borrowed
funds and securities sold under agreements to repurchase which are collectively
down $10,605.
During the first nine months of 1999, loan growth was led by real estate
mortgages expanding $29,202 or 17.8%. The Company has generated a large volume
of new residential loans as well as refinances. Almost half of the growth has
occurred in Pike and Franklin counties in Ohio and Mason county in West
Virginia. These counties represent newer markets for the Company. Management
expects continued loan growth from these locations as well as from the newer
markets entered into during 1999. For the same time period, commercial loans
expanded $20,805 or 21.6%, with the Columbus, Ohio market generating a large
portion of this growth. The Company has had a branch in Columbus since 1997.
10
Consumer loans are up slightly for the first nine months of 1999. Management
anticipates that it will continue its provision to the allowance for loan losses
at its current level for the foreseeable future. While nonperforming loan
balances have increased from December 31, 1998, management believes the
allowance is adequate to absorb inherent losses in the portfolio based on
collateral values as well as a higher relative volume of real estate mortgages.
A comprehensive analysis of the allowance for loan and lease loss is performed
on a quarterly basis to ensure its adequacy. As a percentage of total loans, the
allowance for loan losses at September 30, 1999 was 1.23%, unchanged from
December 31, 1998.
In the third quarter of 1999, the purchase of two West Virginia branches allowed
the Company to acquire $13,300 in time deposits, $6,500 in savings and
interest-bearing demand deposits as well as $1,800 in noninterest-bearing demand
deposits. The premium paid on these acquired deposits totaled $1,600. The
acquisition not only allowed the Company to enter two new markets but also
helped contribute to the total deposit growth that was led by time deposits
increasing $38,983 or 21.6% followed by savings and interest-bearing demand
deposits increasing $30,745 or 30.5%. Noninterest-bearing demand deposits were
up slightly during the first nine months of 1999. Additionally, management has
been successful in generating new deposits with the Company's Gold Club account
which offers a NOW account combined with other banking benefits. Management
utilized the deposit growth to fund the strong loan growth and to reduce
borrowed funds. The new office locations will assist in generating deposits to
fund the Company's expected loan growth.
Other borrowed funds are primarily advances from the Federal Home Loan Bank,
which are used to fund loan growth or short-term liquidity needs. Other borrowed
funds are down $4,755 from December 31, 1998. The decrease occurred primarily in
overnight borrowings. Furthermore, securities sold under agreements to
repurchase are down $5,850 from December 31, 1998.
Total shareholders' equity at September 30, 1999 of $42,190 was 3.7% greater
than the balance of $40,680 on December 31, 1998. Contributing to this increase
was year-to-date income of $3,271 and proceeds from the issuance of common stock
through the dividend reinvestment plan of $301 less cash dividends paid of
$1,383, or $.39 per share adjusted for the stock split. The cash dividend
represents 42.3% of the year-to-date income. Management's decision to effect a
five for four stock split was generated by a desire to make the Company's common
stock more accessible to the smaller investor.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,097 for the third quarter and $3,271
for the first nine months of 1999, up 9.3% and 10.3%, compared to $1,004 and
$2,965 for the same periods in 1998. Comparing year-to-date September 30, 1999
to September 30, 1998, return on assets decreased from .99% to .91% and return
on equity increased from 10.39% to 10.54%. Third quarter earnings per share,
adjusted for the stock split, was $.31 per share, up 6.9% over last year's $.29
per share and for the first nine months of 1999, earnings per share was $.93 per
share, up 9.4% over 1998's $.85. The primary contributor to the gain in net
income was net interest income which exceeded the year-to-date and third quarter
of last year by $1,510 or 10.5 % and $495 or 10.0%. The increase in net interest
income was primarily due to the growth in earning assets of $58,696 from
December 31, 1998. Net interest income
11
was negatively impacted in the first nine months of 1999 by a decline in the net
interest margin resulting from a decrease in interest rates during the first
quarter of 1999. The gain in net interest income was partially offset by net
noninterest expense increasing $1,022 or 11.6% for the first nine months and
increasing $404 or 13.1% for the third quarter in 1999 compared to the same
periods in 1998. Total other income increased $404 or 25.7% for the first nine
months and $95 or 16.9% for the third quarter in 1999 compared to the same
periods in 1998. Contributing to the gain was service charge income, impacted by
the growth in deposit account volume, which contributed an additional $204 and
$74 in the year-to-date and third quarter periods as compared to 1998. Total
other expense increased $1,426 or 13.7% for the first nine months and $499 or
13.7% for the third quarter in 1999 compared to the same periods in 1998.
Contributing the most to this increase was salary and employee benefits, which
are up $866 over the first nine months of 1998 and are up $338 over the third
quarter of 1998. This growth can be attributed to the continuing establishment
of additional offices and growth in assets which require more people to service.
As a result, the number of full-time equivalent employees increased by 28 from
September 30, 1998 to September 30, 1999. Additionally, the Company awarded
annual merit increases. The growth in additional offices coupled with the
investment in processing technology provided for the increase in occupancy
expense and furniture and equipment expense. Contributing to the increase in
other operating expense was computer software depreciation and general increases
in overhead expenses. Beginning the fourth quarter of 1999, management expects
an annual increase of $120 to other operating expenses for the premium paid on
the acquired deposits of two West Virginia branches to be amortized through
2011. Management believes these increases in operating expenses that are
currently evident from the growth in additional offices are necessary for the
long-term growth of the Company, where income from these newer markets is
expected to increase.
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
was developed which committed the Company to being Year 2000 compliant by
December 31, 1998 and afforded 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. The review of the test
results produced no Year 2000 problems.
The awareness, assessment and testing phases of the Company's Year 2000 effort
are complete. 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.
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
12
Directors. The testing of this plan was completed in the fourth quarter of 1999.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
September 30, 1999 December 31, 1998 Minimum
-------------------- ----------------- -----------
Tier 1 risk-based capital 10.9% 12.6% 4.00%
Total risk-based capital ratio 12.1% 13.8% 8.00%
Leverage ratio 8.2% 9.3% 4.00%
Cash dividends paid of $1,383 for the first nine months of 1999 represents a
23.2% increase over the cash dividends paid during the same period in 1998. The
increase in cash dividends paid is due to the additional shares outstanding
during 1999 which were not outstanding during 1998 and to the increase in the
dividend paid per share. At September 30, 1999, approximately 73% of the
shareholders were enrolled in the dividend reinvestment plan. As part of the
Company's stock repurchase program, management has utilized reinvested dividends
and voluntary cash to purchase shares on the open market to be redistributed
through the dividend reinvestment plan.
LIQUIDITY
Liquidity relates to the Bank's ability to meet the cash demands and credit
needs of its customers and is provided by the ability to readily convert assets
to cash and raise funds in the market place. Total cash and cash equivalents,
interest-bearing deposits with banks, held-to-maturity securities maturing
within one year and securities available-for-sale of $80,317 represented 15.7%
of total assets at September 30, 1999. In addition, the Federal Home Loan Bank
in Cincinnati offers advances to the Bank which further enhances the Bank's
ability to meet liquidity demands. At September 30, 1999, the Bank could borrow
an additional $55.5 million from the Federal Home Loan Bank. Management also
acquired approximately $22 million in additional deposits from the purchase of
two West Virginia branches of Huntington National Bank completed in the third
quarter of 1999. The Company experienced an increase of $7,874 in cash and cash
equivalents for the nine months ended September 30, 1999. See the condensed
consolidated statement of cash flows on page 4 for further cash flow
information.
CONCENTRATION OF CREDIT RISK
The Company maintains a diversified credit portfolio, with real estate loans
comprising the most significant portion. Credit risk is primarily subject to
loans made to businesses and individuals in central and southeastern Ohio as
well as western West Virginia. Management believes this risk to be general in
nature, as there are no material concentrations of loans to any industry or
consumer group. To the extent possible, the Company diversifies its loan
portfolio to limit credit risk by avoiding industry concentrations.
13
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.
14
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's 1998 annual report and Form 10-K provide information about the management of interest rate risk.
The following table provides information about the Company's financial instruments that are sensitive to
changes in interest rates.
As of September 30, 1999
Principal Amount Maturing in:
(dollars in thousands) There- Fair Value
1999 2000 2001 2002 2003 after Total 09/30/99
Rate-Sensitive Assets:
Fixed interest rate loans $ 5,749 $ 6,091 $ 10,744 $ 17,078 $ 17,977 $185,054 $242,693 $246,940
Average interest rate 9.57% 11.81% 12.57% 11.37% 10.45% 8.13% 8.85%
Variable interest rate loans $ 33,738 $ 6,141 $ 4,467 $ 4,127 $ 3,272 $103,629 $155,374 $155,529
Average interest rate 9.81% 10.10% 9.71% 8.99% 8.37% 7.89% 8.49%
Fixed interest rate securities $ 4,719 $ 8,916 $ 10,293 $ 11,348 $ 19,472 $ 19,348 $ 74,096 $ 74,136
Average interest rate 7.21% 6.52% 6.40% 6.19% 6.19% 6.90% 6.52%
Other interest-bearing assets $ 494 $ 494 $ 494
Average interest rate 5.28% 5.28%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 5,539 $ 5,281 $ 4,241 $ 3,732 $ 3,284 $ 24,084 $ 46,161 $ 46,161
Savings & Interest-bearing checking $ 18,595 $ 15,423 $ 12,876 $ 10,819 $ 9,148 $ 64,802 $131,663 $131,663
Average interest rate 2.92% 2.97% 3.03% 3.09% 3.14% 3.42% 3.21%
Time deposits $41,074 $125,719 $ 32,237 $ 7,832 $ 10,531 $ 2,028 $219,421 $219,970
Average interest rate 5.14% 5.36% 5.50% 5.84% 6.02% 6.60% 5.40%
Fixed interest rate borrowings $ 1,700 $ 15,259 $ 4,365 $ 5,283 $ 3,098 $ 10,283 $ 39,988 $ 40,188
Average interest rate 5.62% 5.37% 5.56% 5.42% 5.71% 5.36% 5.43%
Variable interest rate borrowings $ 24,216 $ 24,216 $ 24,216
Average interest rate 4.73% 4.73%
15
OHIO VALLEY BANC CORP
Part II - Other Information
Item 1 - Legal Proceedings
- --------------------------
None
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibit 27 - Financial Data Schedule [Exhibit is filed herewith.]
B. No Form 8-K was filed for the quarter ending September 30, 1999.
OHIO VALLEY BANC CORP.
------------------------------------
Date November 12, 1999 /S/ James L. Dailey
----------------- ------------------------------------
James L. Dailey
Chairman and Chief Executive Officer
Date November 12, 1999 /S/ Jeffrey E. Smith
----------------- ------------------------------------
Jeffrey E. Smith
President, Chief Operating Officer
and Treasurer
16