VIA EDGAR
March 29, 2002
U.S. Securities and Exchange Commission
450 Fifth Street, N.W. Judiciary Plaza
Washington, D.C. 20549-0114
Re: Ohio Valley Banc Corp
Annual Report on Form 10-K
To the Commission:
In accordance with the Securities Exchange Act of 1934, as amended, I am
enclosing herewith, on behalf of Ohio Valley Banc Corp (the "Registrant") a
copy of the Annual Report on Form 10-K for December 31, 2001.
Should you have any questions with respect to this filing, please contact
the undersigned at 1-740-446-2631.
Sincerely,
Christopher S. Petro
Assistant Vice President and
Comptroller
Encl.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ended:___________________
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 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
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
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. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S - K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 2002: $77,261,642
The number of common shares of the registrant outstanding
as of February 28, 2002: 3,462,966 common shares.
Exhibit Index begins on page 21. Page 1 of 63 pages.
Ohio Valley Banc Corp
Form l0-K
December 31, 2001
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 2001 Annual Report to Shareholders of Ohio Valley Banc
Corp (Exhibit 13) are incorporated by reference into Part I, Item 1 and
Part II, Items 5, 6, 7A and 8.
(2) Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held April 11, 2001 are incorporated by reference into Part III, Items
10, 11, 12 and 13.
Contents of Form 10-K
PART I
Item 1 Business 3
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A Quantitative and Qualitative Disclosures about
Market Risk 18
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners and
Management 19
Item 13 Certain Relationships and Related Transactions 19
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
Page 2
PART I
ITEM 1 - BUSINESS
General Description of Business
Ohio Valley Banc Corp (the Registrant), was incorporated under the laws of
the State of Ohio on January 8, 1992. The Registrant is registered under the
Bank Holding Company Act of 1956, as amended (BHC Act). A substantial portion of
the Registrant's revenue is derived from cash dividends paid by The Ohio Valley
Bank Company, the Registrant's wholly-owned subsidiary (the Bank). The principal
executive offices of the Registrant are located at 420 Third Avenue, Gallipolis,
Ohio 45631.
The Bank was organized on September 24, 1872, under the laws governing private
banking in Ohio. The Bank was incorporated in accordance with the general
corporation laws governing savings and loan associations of the State of Ohio on
January 8, 1901. The Articles of Incorporation of the Bank were amended on
January 25, 1935, for the purpose of authorizing the Bank to transact a
commercial savings bank and safe deposit business and again on January 26, 1950,
for the purpose of adding special plan banking. The Bank was approved for trust
powers in 1980 with trust services first being offered in 1981. The Bank's
deposits are insured up to applicable limits by the Federal Deposit Insurance
Corporation (FDIC).
The Registrant's wholly-owned subsidiary, Loan Central, Inc. (Loan Central),
was formed on February 1, 1996. Loan Central was incorporated under the Ohio
laws governing finance companies.
The Registrant has a minority equity interest in three insurance companies.
The first company, ProFinance Holdings Corporation, was acquired on October 5,
2000 and is engaged primarily in property and casualty insurance. The second
company, Ohio Valley Financial Services, was acquired on January 10, 2000 as a
joint venture with an insurance agency and is engaged primarily in life,
homeowner and auto insurance. The third company, BSG Title Services, was
acquired on February 28, 2001 and is engaged primarily in title services related
to real estate, commercial and consumer loan customers. All investments were
approved under the guidelines of the State of Ohio Department of Insurance.
The Bank is engaged in commercial and retail banking. Loan Central is engaged
in consumer finance. Reference is hereby made to Item 1 (E), "Statistical
Disclosure" and Item 8 of this Form 10-K for financial information pertaining to
the Registrant's business through its subsidiaries.
Description of Ohio Valley Banc Corp.'s Business
The Registrant's business is incident to its 100% ownership of the outstanding
stock of the Bank and Loan Central. The Bank is a full-service financial
institution offering a blend of commercial, retail and agricultural banking
services. Loans of all types and checking, savings and time deposits are
offered, along with such services as safe deposit boxes, issuance of travelers'
checks and administration of trusts. Loan Central, a consumer finance company,
offers smaller balance consumer loans to individuals with higher credit risk
history. In addition to originating loans, the Bank invests in U.S. Government
and agency obligations, interest-bearing deposits in other financial
institutions and other investments permitted by applicable law.
Page 3
PART I (continued)
Revenues from loans accounted for 82.18% in 2001, 82.50% in 2000 and 82.38% in
1999 of total consolidated revenues. Revenues from interest and dividends on
securities accounted for 8.09%, 9.63% and 10.36% of total consolidated revenues
in 2001, 2000 and 1999, respectively. The Bank presently has seventeen offices,
all of which offer automatic teller machines. Seven of these offices also offer
drive-up services. The Bank accounted for substantially all of the Registrant's
consolidated assets at December 31, 2001.
The banking business is highly competitive. The market area for the Bank is
concentrated primarily in the Gallia, Jackson, Pike and Franklin Counties of
Ohio as well as the Mason, Kanawha and Cabell Counties of West Virginia. Some
additional business originates from the surrounding Ohio counties of Meigs,
Vinton, Scioto and Ross. Competition for deposits and loans comes primarily from
local banks and savings associations, although some competition is also
experienced from local credit unions, insurance companies and mutual funds. In
addition, larger regional institutions, with substantially greater resources,
are becoming increasingly visible. Loan Central's market presence further
strengthens the Registrant's ability to compete in Gallia, Jackson and Pike
County by serving a consumer base which may not meet the Bank's credit
standards. Loan Central also operates in Lawrence County which is outside the
Bank's primary market area. The principal methods of competition are the rates
of interest charged for loans, the rates of interest paid for deposits, the fees
charged for services and the availability and quality of services. The business
of the Registrant and its subsidiaries is not seasonal, nor is it dependent upon
a single or small group of customers.
The Bank deals with a wide cross-section of businesses and corporations which
are located primarily in southeastern Ohio. Few loans are made to borrowers
outside this area. Lending decisions are made in accordance with written loan
policies designed to maintain loan quality. The Bank originates commercial
loans, residential real estate loans, home equity lines of credit, installment
loans and credit card loans. The Bank believes that there is no significant
concentration of loans to borrowers engaged in the same or similar industries
and does not have any loans to foreign entities.
Commercial lending entails significant risks as compared with consumer lending
- - i.e., single-family residential mortgage lending, installment lending and
credit card loans. In addition, the payment experience on commercial loans is
typically dependent on adequate cash flows in order to evaluate whether
anticipated future cash flows will be adequate to service both interest and
principal due. Thus, commercial loans may be subject, to a greater extent, to
adverse conditions in the economy generally or adverse conditions in a specific
industry.
The Registrant's subsidiaries make installment credit available to customers
and prospective customers in their primary market area of southeastern Ohio and
portions of western West Virginia. Credit approval for consumer loans requires
demonstration of sufficiency of income to repay principal and interest due,
stability of employment, a positive credit record and sufficient collateral for
secured loans. It is the policy of the subsidiaries to adhere strictly to all
laws and regulations governing consumer lending. A qualified compliance officer
is responsible for monitoring the performance of his or her respective consumer
portfolio and updating loan personnel. The Registrant's subsidiaries make credit
life insurance and health and accident insurance available to all qualified
borrowers thus reducing their risk of loss when a borrower's income is
terminated or interrupted. The Registrant's subsidiaries review their respective
consumer loan portfolios monthly to charge off loans which do not meet that
subsidiary's
Page 4
PART I (continued)
standards. Credit card accounts are administered in accordance with the same
standards as applied to other consumer loans. Consumer loans generally involve
more risk as to collectibility than mortgage loans because of the type and
nature of collateral and, in certain instances, the absence of collateral. As a
result, consumer lending collections are dependent upon the borrower's continued
financial stability and thus are more likely to be adversely affected by job
loss, divorce or personal bankruptcy and by adverse economic conditions.
The market area for real estate lending by the Bank is also located in
southeastern Ohio and portions of western West Virginia. The Bank generally
requires that the loan amount with respect to residential real estate loans be
no more than 89% of the purchase price or the appraisal value of the real estate
securing the loan, unless private mortgage insurance is obtained by the borrower
for the percentage exceeding 89%. These loans generally range from one year
adjustable to thirty year fixed rate mortgages. In the fourth quarter of 2000,
the Bank began offering secondary market real estate loans to enhance customer
service and loan pricing. Real estate loans are secured by first mortgages with
evidence of title in favor of the Bank in the form of an attorney's opinion of
title or a title insurance policy. The Bank also requires proof of hazard
insurance with the Bank named as the mortgagee and as loss payee. Home equity
lines of credit are generally made as second mortgages by the Bank. The home
equity lines of credit are written with ten year terms but are reviewed
annually. A variable interest rate is generally charged on the home equity lines
of credit.
Beginning in December 1996, the Bank began a phase of SuperBank branch
openings with the objective of further enhancing customer service through
extended hours and convenience as well as expanding the new market area of
western West Virginia. From 1996 to 2001, the Bank has opened eight SuperBank
facilities within supermarkets and Wal-Mart stores. These new branches service
the market areas of Gallia, Jackson, Meigs and Lawrence counties in Ohio as well
as the growing Kanawha and Cabell counties in West Virginia.
The Registrant acquired Jackson Savings Bank (Jackson), an Ohio
state-chartered savings bank, in December 1998. Jackson then merged its
operations into the Bank on November 11, 2000 with management's objective of
improving operational efficiencies. The Registrant also continued to pursue
other ventures that took advantage of newly enacted federal legislation to
create new products and services.
With the advent of the Gramm-Leach-Bliley Act, the Registrant participated as
an investor in the acquisition of ProFinance Holdings Corporation, a property
and casualty insurance underwriter and reinsurance company. The acquisition was
made possible by combining the resources of five financial holding companies, a
private equity firm and a group of insurance executives to purchase the
insurance company on October 5, 2000. In addition, the Registrant formed a
minority-owned subsidiary called Ohio Valley Financial Services. This
investment, which opened for business on January 2, 2001, is a joint venture
insurance agency with an existing insurance agency (The Wiseman Agency, Inc.)
that is located in Jackson, Ohio. Ohio Valley Financial Services offers
customers life, homeowners and auto insurance. Furthermore, the Registrant
participated as an investor with two other banks to acquire BSG Title Services,
a title insurance agency which opened for business on March 2, 2001. BSG Title
Services offers title insurance to real estate, commercial and consumer loan
customers.
Page 5
PART I (continued)
Supervision and Regulation
The following is a summary of certain statutes and regulations affecting the
Registrant and the Bank. The summary is qualified in its entirety by reference
to such statutes and regulations.
The Registrant is subject to regulation under the BHC Act and to the reporting
requirements of, and examination and regulation by, the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). Subsidiary banks of a
bank holding company are subject to certain restrictions imposed by the Federal
Reserve Act on transactions with affiliates, including any loans or extensions
of credit to the bank holding company or any of its subsidiaries, investments in
the stock or other securities thereof and the taking of such stock securities as
collateral for loans or extensions of credit to any borrower; the issuance of
guarantees, acceptances or letters of credit on behalf of the bank holding
company and its subsidiaries; purchases or sales of securities or other assets;
and the payment of money or furnishing of services to the bank holding company
and other subsidiaries. A bank holding company and its subsidiaries are
prohibited from engaging in certain tying arrangements in connection with
extensions of credit and/or the provision of other property or services to a
customer by the bank holding company or its subsidiaries.
In November of 1999, the Gramm-Leach-Bliley, or Financial Services
Modernization Act was enacted, amending the BHC Act, modernizing the laws
governing the financial services industry. This Act authorized the creation of
financial holding companies, a new type of bank holding company with powers
exceeding those of traditional bank holding companies. The Registrant became a
financial holding company during 2000. In order to become a financial holding
company, a bank holding company and all of its depository institutions must be
well capitalized and well managed under federal banking regulations, and the
depository institutions must have received a Community Investment Act rating of
at least satisfactory.
Financial holding companies may engage in a wide variety of financial
activities including any activity that the Federal Reserve and the Treasury
Department consider financial in nature or incidental to financial activities;
and any activity that the Federal Reserve Board determines complementary to a
financial activity and which does not pose a substantial safety and soundness
risk. These activities include securities underwriting and dealing activities,
insurance and underwriting activities and merchant banking/equity investment
activities. Because it has authority to engage in a broad array of financial
activities, a financial holding company may have several affiliates that are
functionally regulated by financial regulators other than the Federal Reserve
Board, such as the SEC and state insurance regulators. The Gramm-Leach-Bliley
Act directs the Federal Reserve Board to rely to the maximum extent possible on
examinations and reports prepared by functional regulators. The Federal Reserve
Board is also prohibited from applying any capital standard directly to any
functionally regulated subsidiary that is already in compliance with the capital
requirements of its functional regulator.
Page 6
PART I (continued)
Gramm-Leach-Bliley provides that if a subsidiary bank of a financial holding
company fails to be both well capitalized and well managed, the financial
holding company must enter into a written agreement with the Federal Reserve
Board within 45 days to comply with all applicable capital and management
requirements. Until the Federal Reserve Board determines that the bank is again
well capitalized and well managed, the Federal Reserve Board may impose
additional limitations or conditions on the conduct or activities of the
financial holding company or any affiliate that the Federal Reserve Board finds
to be appropriate or consistent with federal banking laws. If the financial
holding company does not correct the capital or management deficiencies within
180 days, the financial holding company may be required to divest ownership or
control of all banks, including state-chartered non-member banks and other well
capitalized institutions owned by the financial holding company. If an insured
bank subsidiary fails to maintain a satisfactory rating under the Community
Reinvestment Act, the financial holding company may not engage in activities
permitted only to financial holding companies until such time as the bank
receives a satisfactory rating.
Gramm-Leach-Bliley also closes the unitary thrift loophole which permits
commercial companies to own and operate thrifts, reforms the Federal Home Loan
Bank System to significantly increase community banks' access to loan funding
and protects banks from discriminatory state insurance regulation. The
Gramm-Leach-Bliley Act also includes new provisions in the privacy area,
restricting the ability of financial institutions to share nonpublic personal
customer information with third parties.
As an Ohio state-chartered bank, the Bank is supervised and regulated by the
Ohio Division of Financial Institutions. The Bank's deposits are insured up to
applicable limits by the FDIC and are subject to the applicable provisions of
the Federal Deposit Insurance Act. In addition, the holding company of any
insured financial institution that submits a capital plan under the federal
banking agencies' regulations on prompt corrective action guarantees a portion
of the institution's capital shortfall, as discussed below. Loan Central is
supervised and regulated by the State of Ohio Department of Insurance. The
Registrant's insurance company investments, ProFinance Holdings Corporation,
Ohio Valley Financial Services and BSG Title Services are all supervised and
regulated by the State of Ohio Department of Insurance.
Various requirements and restrictions under the laws of the United States and
the State of Ohio affect the operations of the Bank including requirements to
maintain reserves against deposits, restrictions on the nature and amount of
loans which may be made and the interest that may be charged thereon,
restrictions relating to investments and other activities, limitations on credit
exposure to correspondent banks, limitations on activities based on capital and
surplus, limitations on payment of dividends, and limitations on branching.
Since June 1997, pursuant to federal legislation, the Bank has been authorized
to branch across state lines, unless the law of the other state specifically
prohibits the interstate branching authority granted by federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. The risk-based capital guidelines include both a definition
of capital and a framework for calculating weighted risk assets by assigning
assets and off-balance sheet items to broad risk categories. The minimum ratio
of capital to risk weighted assets (including certain off-balance sheet items,
such as standby letters of credit) to be considered adequately capitalized is
8%. At least 4.0 percentage points is to be comprised of common stockholders'
equity (including retained earnings but excluding treasury stock), noncumulative
perpetual preferred
Page 7
PART I (continued)
stock, a limited amount of cumulative perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2
Capital") may consist, among other things, of mandatory convertible debt
securities, a limited amount of subordinated debt, other preferred stock and a
limited amount of allowance for loan and lease losses. The Federal Reserve Board
also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 3% for
bank holding companies that meet certain specified conditions, including no
operational, financial or supervisory deficiencies, and including having the
highest regulatory rating. The minimum leverage ratio is 100-200 basis points
higher for other bank holding companies and state member banks based on their
particular circumstances and risk profiles and those experiencing or
anticipating significant growth. State non-member banks, such as the Bank, are
subject to similar capital requirements adopted by the FDIC. The Registrant and
the Bank currently satisfy all applicable capital requirements.
The Registrant and the Bank currently satisfy all capital requirements.
Failure to meet applicable capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal and state
regulatory authorities, including the termination of deposit insurance by the
FDIC.
The federal banking regulators have established regulations governing prompt
corrective action to resolve capital deficient banks. Under these regulations,
institutions which become undercapitalized become subject to mandatory
regulatory scrutiny and limitations, which increase as capital continues to
decrease. Such institutions are also required to file capital plans with their
primary federal regulator, and their holding companies must guarantee the
capital shortfall up to 5% of the assets of the capital deficient institution at
the time it becomes undercapitalized.
The ability of a bank holding company to obtain funds for the payment of
dividends and for other cash requirements is largely dependent on the amount of
dividends which may be declared by its subsidiary banks and other subsidiaries.
However, the Federal Reserve Board expects the Registrant to serve as a source
of strength to the Bank, which may require it to retain capital for further
investments in the Bank, rather than for dividends for shareholders of the
Registrant. The Bank may not pay dividends to the Registrant if, after paying
such dividends, it would fail to meet the required minimum levels under the
risk-based capital guidelines and the minimum leverage ratio requirements. The
Bank must have the approval of its regulatory authorities if a dividend in any
year would cause the total dividends for that year to exceed the sum of its
current year's net profits and retained net profits for the preceding two years,
less required transfers to surplus. Payment of dividends by the Bank may be
restricted at any time at the discretion of its regulatory authorities, if they
deem such dividends to constitute an unsafe and/or unsound banking practice or
if necessary to maintain adequate capital for the Bank. These provisions could
have the effect of limiting the Registrant's ability to pay dividends on its
outstanding common shares.
Page 8
PART I (continued)
Deposit Insurance Assessments
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of the Bank Insurance Fund ("BIF") and the Savings
Association Insurance Fund ("SAIF"). The Bank is a member of the BIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both BIF and SAIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because BIF became fully funded, BIF assessments for healthy commercial banks
were reduced to $0 per year during 2001. Federal legislation, which became
effective September 30, 1996, provides, among other things, for the costs of
prior thrift failures to be shared by both the SAIF and the BIF. As a result of
such cost sharing, BIF assessments for healthy banks during 2002 will be $0.020
per $100 in deposits. Based upon their level of deposits at December 31, 2001,
the projected BIF assessment for the Bank would be $82,967 for 2002.
Monetary Policy and Economic Conditions
The business of commercial banks is affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities, including the Federal Reserve Board. The Federal Reserve Board
regulates the money and credit conditions and interest rates in order to
influence general economic conditions primarily through open market operations
in U.S. Government securities, changes in the discount rate on bank borrowings
and changes in reserve requirements against bank deposits. These policies and
regulations significantly influence the amount of bank loans and deposits and
the interest rates charged and paid thereon, and thus have an effect on
earnings. The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past and
are expected to have significant effects in the future. In view of the changing
conditions in the economy and the money market and the activities of monetary
and fiscal authorities, no definitive predictions can be made as to future
changes in interest rates, credit availability or deposit levels.
Other Information
Management anticipates no material effect upon the capital expenditures,
earnings and competitive position of the Registrant or its subsidiaries, the
Bank and Loan Central, by reason of any laws regulating or protecting the
environment. The Registrant believes that the nature of the operations of the
subsidiaries has little, if any, environmental impact. The Registrant,
therefore, anticipates no material capital expenditures for environmental
control facilities in its current fiscal year or for
Page 9
PART I (continued)
the foreseeable future. The subsidiaries may be required to make capital
expenditures related to properties which they may acquire through foreclosure
proceedings in the future; however, the amount of such capital expenditures, if
any, is not currently determinable. Neither the Registrant nor its subsidiaries
have any material patents, trademarks, licenses, franchises or concessions. No
material amounts have been spent on research activities and no employees are
engaged full-time in research activities. As of December 31, 2001, the
Registrant and its subsidiaries employed 249 full-time equivalent employees.
Management considers its relationship with its employees to be good.
Financial Information About Foreign and Domestic Operations and Export Sales
The Registrant's subsidiaries do not have any offices located in a foreign
country and they have no foreign assets, liabilities, or related income and
expense.
Statistical Disclosure
The following section contains certain financial disclosures relating to the
Registrant as required under the Securities and Exchange Commission's Industry
Guide 3, "Statistical Disclosure by Bank Holding Companies", or a specific
reference as to the location of the required disclosures in the Registrant's
2001 Annual Report to Shareholders which are hereby incorporated herein by
reference.
Ohio Valley Banc Corp.
Statistical Information
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. & B. The average balance sheet information and the related analysis of net
interest earnings for the years ending December 31, 2001, 2000 and 1999 are
included in Table I - "Consolidated Average Balance Sheet & Analysis of Net
Interest Income", within Management's Discussion and Analysis of Operations of
the Registrant's 2001 Annual Report to Shareholders and is incorporated herein
by reference.
C. Tables setting forth the effect of volume and rate changes on interest income
and expense for the years ended December 31, 2001, 2000 and 1999 are included in
Table II - "Rate Volume Analysis of Changes in Interest Income & Expense",
within Management's Discussion and Analysis of Operations of the Registrant's
2001 Annual Report to Shareholders and is incorporated herein by reference. For
purposes of these Tables, changes in interest due to volume and rate were
determined as follows:
Volume Variance - Change in volume multiplied by the previous
year's rate. Rate Variance - Change in rate multiplied by the
previous year's volume. Rate / Volume Variance - Change in
volume multiplied by the change in rate.
Page 10
PART I (continued)
Ohio Valley Banc Corp.
Statistical Information
II. SECURITIES
A. Types of Securities - Total securities on the balance sheet are comprised of
the following classifications at December 31:
(dollars in thousands) 2001 2000 1999
---- ---- ----
Securities Available-for-Sale
U.S. Treasury securities .......... $ 1,993 $ 2,508 $ 7,510
U.S. Government agency securities.. 53,056 50,796 41,522
Mortgage-backed securities......... 1,734 2,048 2,189
Marketable equity securities....... 4,776 4,467 4,150
--------- --------- ---------
Total securities available-for-sale $ 61,559 $ 59,819 $ 55,371
========= ========= =========
Securities Held-to-Maturity
Obligations of states and
political subdivisions........... $ 13,765 $ 15,503 15,690
Mortgage-backed securities......... 208 264 319
--------- --------- ---------
Total securities held-to-maturity $ 13,973 $ 15,767 $ 16,009
========= ========= =========
B. Information required by this item is included in Table III - "Securities",
within Management's Discussion and Analysis of Operations of the Registrant's
2001 Annual Report to Shareholders and is incorporated herein by reference.
C. Excluding obligations of the U.S. Treasury and other agencies and
corporations of the U.S. Government, no concentration of securities exists of
any issuer that is greater than 10% of shareholders' equity of the Registrant.
III. LOAN PORTFOLIO
A. Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at December 31:
(dollars in thousands) 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Real estate loans $226,212 $209,724 $201,625 $163,650 $120,697
Commercial loans 173,154 139,826 119,585 96,116 78,124
Consumer loans 108,437 98,013 88,942 85,664 78,878
All other loans 857 740 1,006 1,700 2,568
-------- -------- -------- -------- --------
$508,660 $448,303 $411,158 $347,130 $280,267
======== ======== ======== ======== ========
Page 11
PART I (continued)
Ohio Valley Banc Corp.
Statistical Information
B. Maturities and Sensitivities of Loans to Changes in Interest Rates -
Information required by this item is included in table VII - "Maturity and
Repricing Data of Loans", within Management's Discussion and Analysis of
Operations of the Registrant's 2001 Annual Report to Shareholders and is
incorporated herein by reference.
C.1. Risk Elements - Information required by this item is included in Table VI -
"Summary of Nonperforming and Past Due Loans", within Management's Discussion
and Analysis of Operations of the Registrant's 2001 Annual Report to
Shareholders and is incorporated herein by reference.
2. Potential Problem Loans - At December 31, 2001, there are approximately
$300,000 of loans, which are not included in Table VI - "Summary of
Nonperforming and Past Due Loans" within Management's Discussion and Analysis of
Operations of the Registrant's 2001 Annual Report to Shareholders, for which
management has some doubt as to the borrower's ability to comply with the
present repayment terms. These loans and their potential loss exposure have been
considered in management's analysis of the adequacy of the allowance for loan
losses.
3. Foreign Outstandings - There were no foreign outstandings at December 31,
2001, 2000 or 1999.
4. Loan Concentrations - As of December 31, 2001, there were no concentrations
of loans greater than 10% of total loans which are not otherwise disclosed as a
category of loans pursuant to Item III (A) above. Also refer to the Consolidated
Financial Statements regarding concentrations of credit found within Note A of
the Notes to the Consolidated Financial Statements of the Registrant's 2001
Annual Report to Shareholders incorporated herein by reference.
5. No material amount of loans that have been classified by regulatory examiners
as loss, substandard, doubtful, or special mention have been excluded from the
amounts disclosed as impaired, nonaccrual, past due 90 days or more,
restructured, or potential problem loans.
D. Other Interest-Bearing Assets - As of December 31, 2001, there were no other
interest-bearing assets that would be required to be disclosed under Item III
(C) if such assets were loans.
Page 12
PART I (continued)
Ohio Valley Banc Corp.
Statistical Information
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following schedule presents an analysis of the allowance for loan losses
for the years ended December 31:
(dollars in thousands) 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance, beginning of year.... $5,385 $5,055 $4,277 $3,390 $3,180
Loans charged-off:
Real estate............... 659 92 41 110 39
Commercial................ 620 61 454 130 215
Consumer.................. 1,903 1,642 1,298 1,433 961
-------- -------- -------- -------- --------
Total loans charged-off 3,182 1,795 1,793 1,673 1,215
Recoveries of loans:
Real estate............... 69 4 13 40 1
Commercial................ 17 23 47 41
Consumer.................. 459 231 232 178 138
-------- -------- -------- -------- --------
Total recoveries of loans 545 235 268 265 180
Net loan charge-offs.......... (2,637) (1,560) (1,525) (1,408) (1,035)
Provision charged to operations 3,503 1,890 2,303 2,295 1,245
-------- -------- -------- -------- --------
Balance, end of year.......... $6,251 $5,385 $5,055 $3,390 $3,390
======== ======== ======== ======== ========
Ratio of Net Charge-offs
to Average Loans........... .56% .36% .40% .46% .38%
======== ======== ======== ======== ========
Discussion on factors which influenced management in determining the amount
of additions charged to provision expense is included in the caption "Loans"
within Management's Discussion and Analysis of Operations of the Registrant's
2001 Annual Report to Shareholders and is incorporated herein by reference.
B. Allocation of the Allowance for Loan Losses - Information required by this
item is included in Table V - "Allocation of the Allowance for Loan Losses",
within Management's Discussion and Analysis of Operations of the Registrant's
2001 Annual Report to Shareholders and is incorporated herein by reference.
V. DEPOSITS
A. & B. Deposit Summary - Information required by this item is included in Table
I - "Consolidated Average Balance Sheet & Analysis of Net Interest Income",
within Management's Discussion and Analysis of Operations of the Registrant's
2001 Annual Report to Shareholders and is incorporated herein by reference.
Page 13
PART I (continued)
Ohio Valley Banc Corp.
Statistical Information
C. & E. Foreign Deposits - There were no foreign deposits outstanding at
December 31, 2001, 2000 or 1999.
D. Schedule of Maturities - The following table provides a summary of total time
deposits by remaining maturities for the period ended December 31, 2001:
Over Over
3 months 3 through 6 through Over
(dollars in thousands) or less 6 months 12 months 12 months
--------- --------- --------- ---------
Certificates of deposit of
$100,000 or greater.................. $ 12,986 $ 5,763 $ 22,768 $ 33,468
Other time deposits of
$100,000 or greater.................. 929 467 2,300 3,086
--------- --------- --------- ---------
Total time deposits of
$100,000 or greater.................. $ 13,915 $ 6,230 $ 25,068 $ 36,554
========= ========= ========= =========
VI. RETURN ON EQUITY AND ASSETS
Information required by this section is included in Table IX -
"Key Ratios", within Management's Discussion and Analysis of Operations of the
Registrant's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
VII. SHORT-TERM BORROWINGS
The following schedule is a summary of securities sold under agreements to
repurchase at December 31:
(dollars in thousands) 2001 2000 1999
-------- -------- --------
Balance outstanding at period-end........... $ 29,274 $ 18,345 $ 16,788
-------- -------- --------
Weighted average interest rate at period-end 1.90% 5.28% 4.54%
-------- -------- --------
Average amount outstanding during year...... $ 19,893 $ 17,606 $ 13,961
-------- -------- --------
Approximate weighted average interest rate
during the year.......................... 3.15% 4.88% 3.65%
-------- -------- --------
Maximum amount outstanding as of any
month-end................................ $ 29,274 $ 22,690 $ 16,788
-------- -------- --------
Page 14
PART I (continued)
ITEM 2 - PROPERTIES
The Registrant owns no material physical properties except through the Bank.
The Bank conducts its operations from its main office building at 420 Third
Avenue, in Gallipolis, Ohio 45631. The main office building and six of the
sixteen branch facilities are owned by the Bank. A summary of these owned
properties are as follows:
1) Mini-Bank Office 437 Fourth Avenue, Gallipolis, OH 45631
2) Jackson Pike Office 3035 State Route 160, Gallipolis, OH 45631
3) Rio Grande Office 416 West College Avenue, Rio Grande, OH 45674
4) Jackson Office 738 East Main Street, Jackson, OH 45640
5) Waverly Office 507 W. Emmitt Avenue, Waverly, OH 45690
6) Milton Office 280 East Main Street, Milton, WV 25541
The Bank leases ten of its sixteen branch facilities. A summary of these
leased properties are as follows:
1) Columbus Office 3700 South High Street, Columbus, OH 43207
2) Point Pleasant Office 328 Viand Street, Point Pleasant, WV 25550
3) SuperBank-Gallipolis Office 236 Second Avenue, Gallipolis, OH 45631
4) SuperBank-Pomeroy Office 700 West Main Street, Pomeroy, OH 45769
5) Wal-Mart Gallipolis Office 2145 Eastern Avenue, Gallipolis, OH 45631
6) Wal-Mart Cross Lanes Office 100 Nitro Marketplace, Cross Lanes, WV 25315
7) Wal-Mart Southridge Office 2700 Mountaineer Blvd., S. Charleston, WV 25309
8) Wal-Mart Huntington Office 5170 US Rt. 60 East, Huntington, WV 25705
9) Wal-Mart South Point Office US Rt. 52, South Point, OH 45680
10) SuperBank-Jackson Office 530 East Main Street, Jackson, OH 45640
In addition, the Bank owns a facility at 143 Third Avenue, Gallipolis, Ohio
used for additional office space. The Bank also owns a facility at 441 Second
Avenue, Gallipolis, Ohio, which it leases to Caldwell Miller Financial Group,
Inc.
Loan Central leases four facilities used as consumer finance offices. A
summary of these leased properties are as follows:
1) Gallipolis Office 2145-E Eastern Avenue, Gallipolis, Ohio 45631
2) South Point Office 348 County Road 410, South Point, Ohio 45680
3) Jackson Office 345 East Main Street, Jackson, Ohio 45640
4) Waverly Office 505 West Emmitt Avenue, Waverly, Ohio 45690
Ohio Valley Financial Services conducts business in an office located at 221
Main Street, Jackson, Ohio 45640.
The Bank, Loan Central and Ohio Valley Financial Services' leased facilities
are all subject to commercially standard leasing arrangements.
Management considers these properties to be satisfactory for its current
operations.
Page 15
PART I (continued)
ITEM 3 - LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Registrant or its
subsidiaries, other than ordinary litigation incidental to their respective
businesses.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted during the fourth quarter of 2001 to a vote of
security holders, by solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to Executive Officers who
are directors is incorporated by reference to the information appearing under
the caption "Election of Directors" on page 3 of the Registrant's 2002 Proxy
Statement. Executive officers not required to be disclosed in the Proxy
Statement are presented in the table below. Executive officers serve at the
pleasure of the Board of Directors.
Current Position and
Name and Age Business Experience During Past 5 Years
- ------------------ ---------------------------------------
Sue Ann Bostic, 60 Vice President of the Registrant beginning 1996,
Senior Vice President, Administrative Group of the
Bank beginning 1996.
Cherie A. Barr, 35 Vice President of the Registrant beginning 1998,
President of Loan Central beginning 2000, President
and Secretary of Loan Central from 1999 to 2000,
Senior Vice President and Secretary of Loan Central
from 1998 to 1999, Secretary of Loan Central from
1997 to 1998, Office Manager of Loan Central from
1996 to 1997.
Katrinka V. Hart, 43 Vice President of the Registrant beginning 1995,
Senior Vice President, Retail Bank Group of the Bank
beginning 1995.
Mario P. Liberatore, 56 Vice President of the Registrant beginning 1997,
Senior Vice President, West Virginia Bank Group of
the Bank beginning 1997, President of Bank One, Point
Pleasant, West Virginia, N.A. from 1995 to 1997.
E. Richard Mahan, 56 Senior Vice President and Secretary of the Registrant
beginning 2000, Executive Vice President and
Secretary of the Bank beginning 2000, Senior Vice
President of the Registrant from 1999 to 2000,
Executive Vice President of the Bank from 1999 to
2000, Vice President of the Registrant from 1995 to
1998, Senior Vice President, Commercial Bank Group of
the Bank from 1995 to 1998.
Page 16
PART I (continued)
Current Position and
Name and Age Business Experience During Past 5 Years
- ------------------ ---------------------------------------
Larry E. Miller, II, 37 Senior Vice President and Treasurer of the Registrant
beginning 2000, Executive Vice President and
Treasurer of the Bank beginning 2000, Senior Vice
President of the Registrant from 1999 to 2000,
Executive Vice President of the Bank from 1999 to
2000, Vice President of the Registrant from 1995 to
1998, Senior Vice President, Financial Bank Group of
the Bank from 1995 to 1998.
Harold A. Howe, 52 Vice President of the Registrant beginning 1998,
President of Jackson from 1994 to 2000.
David L. Shaffer, 43 Vice President of the Registrant beginning 2000,
Senior Vice President, Commercial Bank Group of the
Bank beginning 2000, Vice President, Commercial
Lending of the Bank from 1999 to 2000, Vice
President, Retail Lending of the Bank from 1994 to
1999.
Sandra L. Edwards, 54 Vice President of the Registrant beginning 2000,
Senior Vice President, Financial Bank Group of the
Bank beginning 2000, Vice President, Management
Information Systems of the Bank from 1999 to 2000,
Assistant Vice President, Operations Center Manager
of the Bank from 1993 to 1999.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required under this item is located under the caption "Summary
of Common Stock Data" in the Registrant's 2001 Annual Report to Shareholders. In
addition, attention is directed to the caption "Capital Resources" within
Management's Discussion and Analysis of Operations of the Registrant's 2001
Annual Report to Shareholders and to Note P - "Regulatory Matters". All such
information is incorporated herein by reference.
The Registrant was not involved in any sale of unregistered securities.
ITEM 6 - SELECTED FINANCIAL DATA
The information required under this item is incorporated by reference to the
information appearing under the caption "Selected Financial Data" of the
Registrant's 2001 Annual Report to Shareholders.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Operations" appears within the
Registrant's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
Page 17
PART II (continued)
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required under this item is included in Table VIII - "Rate
Sensitivity Analysis" and the caption "Liquidity and Interest Rate Sensitivity"
found within Management's Discussion and Analysis of Operations of the
Registrant's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's consolidated financial statements and related notes are
listed below and incorporated herein by reference to the 2001 Annual Report to
Shareholders. The "Report of Independent Auditors" and the unaudited
supplementary "Consolidated Quarterly Financial Information (unaudited)"
specified by Item 302 of Regulation S-K appear within the 2001 Annual Report to
Shareholders and are incorporated by reference.
Consolidated Statements of Condition as of December 31, 2001 and 2000
Consolidated Statements of Income for the years ended December 31, 2001, 2000
and 1999
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999
Notes to the Consolidated Financial Statements
Report of Independent Auditors
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant has not changed accountants during the two year period ending
December 31, 2001, nor has it had disagreements with its accountants on
accounting or financial disclosure matters.
PART III
Information relating to the following items is included in the Registrant's
definitive proxy statement for the Annual Meeting of Shareholders to be held on
April 10, 2002 ("2002 Proxy Statement") filed with the Commission and is
incorporated by reference to the pages listed below into this Form 10-K Annual
Report, provided, that neither the report on executive compensation nor the
performance graph included in the Registrant's definitive proxy statement shall
be deemed to be incorporated herein by reference.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Discussion located at pages 5-6 of 2002 Proxy Statement.
See also Part I - "Executive Officers of the Registrant", beginning
on page 16 of this Form 10-K.
No facts exist which would require disclosure under Item 405 of
Regulation S-K.
ITEM 11 - EXECUTIVE COMPENSATION
Discussion located at pages 6-9 of 2002 Proxy Statement.
Page 18
PART III (continued)
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Discussion located at pages 2-3 of 2002 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Discussion located
at page 10 of 2002 Proxy Statement.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
A. (1) Financial Statements
The following consolidated financial statements of the Registrant appear in
the 2001 Annual Report to Shareholders, Exhibit 13, and are specifically
incorporated by reference under Item 8 of this Form 10-K:
Consolidated Statements of Condition as of December 31, 2001 and 2000
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules
Financial statement schedules are omitted as they are not required or are not
applicable, or the required information is included in the financial statements.
(3) Exhibits
Reference is made to the Exhibit Index which is found on page 21 of this Form
10-K.
B. Reports on Form 8-K
The Registrant's current report on Form 8-K filed with the SEC on January 18,
2002 (SEC File No. 0-20914) announced the decision of the Company's Board of
Directors to declare a special cash dividend of $.16 per share on the
outstanding shares of Ohio Valley Banc Corp stock. The special dividend was made
payable on December 31, 2001 to shareholders of record December 21, 2001. This
8-K filing is being incorporated into this Form 10-K by reference.
Page 19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OHIO VALLEY BANC CORP.
Date: March 29, 2002 By /s/James L. Dailey
-----------------------------
James L. Dailey, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 2002 by the following persons on
behalf of the Registrant and in the capacities indicated.
Name Capacity
---- --------
/s/James L. Dailey Chairman
- -----------------------------
James L. Dailey
/s/Jeffrey E. Smith President, Chief Executive Officer
- ----------------------------- and Director
Jeffrey E. Smith
/s/Lannes C. Williamson Director
- -----------------------------
Lannes C. Williamson
/s/Phil A. Bowman Director
- -----------------------------
Phil A. Bowman
/s/W. Lowell Call Director
- -----------------------------
W. Lowell Call
/s/Robert H. Eastman Director
- -----------------------------
Robert H. Eastman
/s/Merrill L. Evans Director
- -----------------------------
Merrill L. Evans
/s/Steven B. Chapman Director
- -----------------------------
Steven B. Chapman
/s/Thomas E. Wiseman Director
- -----------------------------
Thomas E. Wiseman
Page 20
EXHIBIT INDEX
The following exhibits are included in this Form 10-K or are incorporated by
reference as noted in the following table:
Exhibit Number Exhibit Description
3a Amended Articles of Ohio Valley Banc Corp.
Incorporated herein by reference to Exhibit 3(a)
to the Registrant's Annual Report on Form 10-K
for fiscal year ending December 31, 1997 (SEC File
No. 0-20914).
3b Code of Regulations of the Registrant.Incorporated
herein by reference to Exhibit 3(b) to the
Registrant's current report on Form 8-K (SEC File
No. 0-20914) filed November 6, 1992.
10 Summary of Deferred Compensation Plan for
Directors and Executive Officers. Incorporated
herein by reference to Exhibit 10 to the
Registrant's Annual Report on Form 10-K for fiscal
year ending December 31, 1997 (SEC File No.
0-20914).
11 Statement regarding computation of per share
earnings (included in Note A of the notes to the
Consolidated Financial Statements of this Annual
Report on Form 10-K.)
13 Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 2001 filed.
herewith.
21 Subsidiaries of the Registrant is being
incorporated herein by reference.
23 Consent of Independent Accountant - Crowe, Chizek
and Company LLP filed herewith.
Page 21
MISSION BRIEFING
by CEO/President Jeff Smith & Chairman Jim Dailey
Dear Shareholder:
2001 was a year of extremes: extreme pleasure as your company achieved its ninth
consecutive year of record earnings; extreme pain as we experienced the attacks
on the World Trade Center.
We were extremely proud of the 249 employees who were responsible for $4.9
million in net income, an increase of 11.3%; and earnings per share of $1.41, an
increase of 12.8%. These employees supported the origination of more than 7,000
loans to individuals and businesses as well as opening more than 8,000 deposit
accounts. We were extremely perplexed as our nation's economy slipped into a
recession for the first time in nearly a decade.
We were extremely encouraged by the Federal Reserve's decisive actions in early
January to stimulate the delining US economy. We were extremely discouraged by
the events surrounding the Enron debacle, the largest corporate bankruptcy in US
history.
Yet, regardless of the extremes of 2001, your company paid a special FREEDOM
dividend of $.16 per share on December 31. This 2001 Annual Report is a tribute
to the customers, employees and shareholders for whom the companies of Ohio
Valley Banc Corp. open their doors every day. This Annual Report documents the
progress over a calendar year of an organization with 21 offices in 10 countries
and 2 states. This Annual Report memorializes the women and men whose discipline
and dedication achieved this success, including three new directors of Ohio
Valley Bank Co.: Anna Barnitz, Barney Molnar and Brent Saunders. This Annual
Report is also a tribute to the FREEDOMS still standing in America. Ohio Valley
Banc Corp., like America, is still open for business.
Sincerely,
Jeffrey E. Smith
CEO & President
James L. Dailey
Chairman of the Board
Our Mission
Ohio Valley Banc Corp. is a Financial Holding Company whose lead subsidiary is
the Ohio Valley Bank Co. which was founded in 1872 in Gallia County, Ohio.
Our mission is to:
> exceed the expectations of our customers,
> increase the standard of living of our employees, and
> increase the value of our shareholders' investment.
We accomplish our mission by:
increasing innovative products and services for our customers; increasing
employment opportunities for our employees; increasing market value per share,
dividends per share, or both for our shareholders.
Our Goals
For our Customers: To provide value in financial products and services which are
delivered in a courteous, resourceful, and reliable manner.
For our Employees: To maintain a desirable work environment in which the
employee can find job satisfaction, individual development, and corporate pride.
For our Shareholders: To exceed the average cumulative shareholder return of
Financial Holding Companies in our asset size for the previous 5-year period of
time.
Our Values
The Directorate, Management, and Employees pledge to treat our customers,
employees, and shareholders in the same manner as we would expect to be treated
if we were a customer, employee, or shareholder under the same set of
circumstances.
INVESTOR INFORMATION
VITAL STATISTICS
> Record earnings for 10 consecutive years
> Regular cash dividends per share for 2001 totaled $.63, a 6.8% increase from
2000. The special "freedom dividend", paid in fourth quarter 2001, boosted
dividends to a 33.9% increase over 2000. ("freedom dividend" denoted on the
graph below)
> Net income per share represented an increase of 12.8% over last year
> Approximately $635 million in assets
BUSINESS PROFILE
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 Ohio Valley Bank Company was organized on September 24, 1872. The Bank is
insured under the Federal Deposit Insurance Act and is chartered under the
banking laws of the State of Ohio. The company currently operates seventeen
offices in Ohio and West Virginia.
In April 1996, the Banc Corp opened a consumer finance company operating under
the name of Loan Central, Inc. with offices in Gallipolis, South Point, Jackson,
and Waverly, 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: E. Richard Mahan,
Secretary, P.O. Box 240, Gallipolis, OH 45631. The annual report and proxy
statement are also available on the company's Web portal, www.ovbc.com.
STOCK LISTING
Ohio Valley Banc Corp stock is traded on The Nasdaq Stock Market under the
symbol OVBC.
HEADQUARTERS
Ohio Valley Banc Corp
420 Third Avenue
P.O. Box 240
Gallipolis, Ohio 45631
740.446.2631 or 800.468.6682
www.ovbc.com
FINANCIAL HIGHLIGHTS
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
NET INCOME ($000) $ 4,895 $ 4,400 $ 4,292 $ 4,130 $ 3,782
TOTAL ASSETS ($000) $634,999 $561,658 $522,057 $447,448 $379,088
INCOME PER SHARE $ 1.41 $ 1.25 $ 1.22 $ 1.18 $ 1.10
DIVIDENDS PER SHARE $ .79 $ .59 $ .53 $ .44 $ .42
OHIO VALLEY BANC CORP. DIRECTORS
James L. Dailey
Jeffrey E. Smith
Merrill L. Evans
Robert H. Eastman
W. Lowell Call
Thomas E. Wiseman
Phil A. Bowman
Lannes C. Williamson
Steven B. Chapman
OHIO VALLEY BANC CORP. OFFICERS
Jeffrey E. Smith
James L. Dailey
E. Richard Mahan
Larry E. Miller, II
Katrinka V. Hart
Sue Ann Bostic
Mario Liberatore
Cherie A. Barr
Harold A. Howe
Sandra L. Edwards
David L. Shaffer
Scott W. Shockey
Cindy H. Johnston
Paula W. Salisbury
OHIO VALLEY BANK COMPANY DIRECTORS
James L. Dailey
Jeffrey E. Smith
Merrill L. Evans
Robert H. Eastman
W. Lowell Call
Thomas E. Wiseman
Phil A. Bowman
Lannes C. Williamson
Harold A. Howe
Steven B. Chapman
Wendell B. Thomas
Anna P. Barnitz
Barney A. Molnar
Brent A. Saunders
DIRECTORS EMERITUS
Keith R. Brandeberry
Art E. Hartley, Sr.
Morris E. Haskins
Charles C. Lanham
C. Leon Saunders
Warren F. Sheets
WEST VIRGINIA ADVISORY BOARD
Lannes C. Williamson
Anna P. Barnitz
Mario P. Liberatore
Charles C. Lanham
Richard L. Handley
Gregory K. Hartley
Trenton M. Stover
R. Raymond Yauger
John C. Musgrave
OHIO VALLEY BANK OFFICERS
Jeffrey E. Smith President & Chief Executive Officer
James L. Dailey Chairman of the Board
E. Richard Mahan Executive Vice President & Secretary
Larry E. Miller, II Executive Vice President & Treasurer
Katrinka V. Hart Senior Vice President, Retail Bank Group, and Risk
Management Officer
Sue Ann Bostic Senior Vice President, Administrative Services Group
Mario P. Liberatore Senior Vice President, West Virginia Bank Group
Sandra L. Edwards Senior Vice President, Financial Bank Group
David L. Shaffer Senior Vice President, Commercial Bank Group
Patricia L. Davis Vice President, Research & Technical Applications
Richard D. Scott Vice President, Trust
Tom R. Shepherd Vice President,Director of Marketing, Product Management
& Retail Development
Bryan W. Martin Vice President, Facilities & Technical Services
Hugh H. Graham, Jr. Vice President, SuperBank Division
Patrick H. Tackett Vice President, Western Division Branch Administrator
Jennifer L. Osborne Vice President, Retail Lending
Molly K. Tarbett Vice President, Retail Deposits & Loss Prevention Mgr
Scott W. Shockey Vice President and Chief Financial Officer
Phyllis P. Wilcoxon Assistant Vice President
Robert T. Hennesy Assistant VP, Indirect Lending Manager
Philip E. Miller Assistant VP, Region Manager Franklin County
Rick A. Swain Assistant VP, Region Manager Pike County
Timothy V. Stevens Assistant VP, Region Manager Cabell County
Judy K. Hall Assistant VP, Training and Educational Development
Melissa P. Mason Assistant VP for Shareholder Relations
Diana L. Parks Assistant VP, Internal Auditor
Christopher S. Petro Assistant VP and Comptroller
Linda L. Plymale Assistant Cashier, Transit Officer
Brenda G. Henson Assistant Cashier, Manager Customer Service
Keith A. Johnson Assistant Cashier, Collections Manager
Kyla A. Carpenter Assistant Cashier and Marketing Officer
Richard P. Speirs Assistant Cashier, Maintenance Technical Supervisor
Stephanie L. Stover Assistant Cashier, Retail Lending Operations Manager
Marilyn Kearns Assistant Cashier, Director of Human Resources
Kimberly R. Williams Assistant Cashier, EDP Officer
Bryna S. Butler Assistant Cashier for Corporate Communications
Raymond G. Polcyn Assistant Cashier, Region Manager Gallia/Meigs/Jackson
SuperBank Offices
Cindy H. Johnston Assistant Secretary
Paula W. Salisbury Assistant Secretary
LOAN CENTRAL OFFICERS
Jeffrey E. Smith Chairman of the Board
Cherie A. Barr President
Timothy R. Brumfield Secretary and Manager, Gallipolis Office
Renae L. Hughes Manager, Jackson Office
Joseph I. Jones Manager, Waverly Office
T. Joe Wilson Manager, South Point Office
SELECTED FINANCIAL DATA
Years Ended December 31
SUMMARY OF OPERATIONS: 2001 2000 1999 1998 1997
(dollars in thousands, except per share data)
Total interest income $ 47,585 $ 45,195 $ 40,006 $ 35,191 $ 31,453
Total interest expense 24,235 24,065 18,837 15,691 14,517
Net interest income 23,350 21,130 21,169 19,500 16,936
Provision for loan losses 3,503 1,890 2,303 2,295 1,245
Total other income 5,129 3,858 3,132 2,760 1,860
Total other expenses 18,171 16,978 16,060 14,201 12,293
Income before income taxes 6,805 6,120 5,938 5,764 5,258
Income taxes 1,910 1,720 1,646 1,634 1,476
Net income 4,895 4,400 4,292 4,130 3,782
PER SHARE DATA(1):
Net income per share $ 1.41 $ 1.25 $ 1.22 $ 1.18 $ 1.10
Cash dividends per share $ .79 $ .59 $ .53 $ .44 $ .42
Weighted average number
of shares outstanding 3,461,856 3,516,205 3,530,203 3,502,366 3,426,600
AVERAGE BALANCE SUMMARY:
Total loans $473,998 $432,165 $382,353 $305,392 $271,535
Securities (2) 70,857 74,733 73,783 74,478 73,303
Deposits 441,255 428,874 376,050 319,493 304,296
Shareholders' equity 45,329 42,773 41,730 38,639 34,449
Total assets 590,193 544,306 488,632 408,482 369,552
PERIOD END BALANCES:
Total loans $508,660 $448,303 $411,158 $347,130 $280,267
Securities (2) 76,796 76,402 72,186 72,419 76,711
Deposits 455,861 432,371 405,331 327,317 306,037
Shareholders' equity 46,300 44,492 42,708 40,680 36,834
Total assets 634,999 561,658 522,057 447,448 379,088
KEY RATIOS:
Return on average assets .83% .81% .88% 1.01% 1.02%
Return on average equity 10.80% 10.29% 10.29% 10.69% 10.98%
Dividend payout ratio 55.84% 47.14% 43.73% 37.13% 37.81%
Average equity to
average assets 7.68% 7.86% 8.54% 9.46% 9.32%
(1) Restated for stock splits as appropriate.
(2) Securities include interest-bearing balances with banks.
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31 2001 2000
----------------- ---- ----
(dollars in thousands)
ASSETS
Cash and noninterest-bearing deposits with banks $ 17,288 $ 14,569
Federal funds sold 9,000
------------- ------------
Total cash and cash equivalents 26,288 14,569
Interest-bearing balances with banks 1,264 816
Securities available-for-sale 61,559 59,819
Securities held-to-maturity
(estimated fair value: 2001 - $14,421,
2000 - $16,111) 13,973 15,767
Total loans 508,660 448,303
Less: Allowance for loan losses (6,251) (5,385)
------------- ------------
Net loans 502,409 442,918
Premises and equipment, net 8,702 9,285
Accrued income receivable 3,420 4,104
Intangible assets, net 1,267 1,396
Bank owned life insurance 12,089 9,408
Other assets 4,028 3,576
------------- -------------
Total assets $ 634,999 $ 561,658
============= =============
LIABILITIES
Noninterest-bearing deposits $ 56,735 $ 47,661
Interest-bearing deposits 399,126 384,710
------------- -------------
Total deposits 455,861 432,371
Securities sold under agreements to repurchase 29,274 18,345
Other borrowed funds 90,856 53,622
Obligated mandatorily redeemable capital securities
of subsidiary trust 5,000 5,000
Accrued liabilities 7,708 7,828
------------- -------------
Total liabilities 588,699 517,166
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2001 - 3,579,250 shares
issued, 2000 - 3,559,770 shares issued) 3,579 3,560
Additional paid-in capital 29,207 28,760
Retained earnings 15,979 13,817
Accumulated other comprehensive income 1,043 436
Treasury stock at cost (2001 - 129,990 shares,
2000 - 72,489 shares) (3,508) (2,081)
------------- -------------
Total shareholders' equity 46,300 44,492
------------- -------------
Total liabilities and
shareholders' equity $ 634,999 $ 561,658
============= =============
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 2001 2000 1999
------------------------------- ---- ---- ----
(dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees $43,321 $40,470 $35,539
Securities:
Taxable 2,879 3,377 3,200
Tax exempt 758 793 826
Dividends 309 313 290
Other interest 318 242 151
------- ------- -------
47,585 45,195 40,006
Interest expense:
Deposits 19,281 20,367 15,602
Repurchase agreements 627 859 510
Other borrowed funds 3,797 2,671 2,725
Obligated mandatorily redeemable capital
securities of subsidiary trust 530 168
------- ------- -------
24,235 24,065 18,837
------- ------- -------
Net interest income 23,350 21,130 21,169
Provision for loan losses 3,503 1,890 2,303
------- ------- -------
Net interest income after provision
for loan losses 19,847 19,240 18,866
------- ------- -------
Noninterest income:
Service charges on deposit accounts 3,003 2,016 1,237
Trust fees 222 217 225
Income from bank owned insurance 596 482 407
Net gain on sale of
available-for-sale securities 317
Other 1,308 1,143 946
------- ------- -------
5,129 3,858 3,132
------- ------- -------
Noninterest expense:
Salaries and employee benefits 9,815 9,300 9,190
Occupancy expense 1,255 1,337 1,041
Furniture and equipment expense 1,141 1,253 1,115
Corporation franchise tax 587 385 356
Data processing expense 496 480 316
Other 4,877 4,223 4,042
------- ------- -------
18,171 16,978 16,060
------- ------- -------
Income before income taxes 6,805 6,120 5,938
Provision for income taxes 1,910 1,720 1,646
------- ------- -------
NET INCOME $ 4,895 $ 4,400 $ 4,292
======= ======= =======
Earnings per share $ 1.41 $ 1.25 $ 1.22
======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2001, 2000 and 1999
Accumulated
Other Total
Common Retained Comprehensive Treasury Shareholders'
(dollars in thousands, except per Stock Surplus Earnings Income Stock Equity
share data) ----- ------- -------- ------ ----- ------
BALANCES AT JANUARY 1, 1999 $ 2,818 $27,598 $ 9,797 $ 467 $40,680
Comprehensive income:
Net income 4,292 4,292
Cumulative effect of securities
transfers, net 167 167
Net change in unrealized gain
on available-for-sale securities (1,231) (1,231)
-------
Total comprehensive income 3,228
Common Stock split, 25% 706 (706)
Cash paid in lieu of fractional
shares in stock split (15) (15)
Common Stock issued, 7,500 shares 8 241 249
Common Stock issued through
dividend reinvestment, 16,756 shares 17 615 632
Cash dividends, $.53 per share (1,877) (1,877)
Shares acquired for treasury, 5,589 shares $ (189) (189)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 1999 3,549 28,454 11,491 (597) (189) 42,708
Comprehensive income:
Net income 4,400 4,400
Net change in unrealized gain
on available-for-sale securities 1,033 1,033
-------
Total comprehensive income 5,433
Common Stock issued through
dividend reinvestment, 11,198 shares 11 306 317
Cash dividends, $.59 per share (2,074) (2,074)
Shares acquired for treasury, 66,900 shares (1,892) (1,892)
------- ------- ------- ------- -------- -------
BALANCES AT DECEMBER 31, 2000 3,560 28,760 13,817 436 (2,081) 44,492
Comprehensive income:
Net income 4,895 4,895
Net change in unrealized gain
on available-for-sale securities 607 607
-------
Total comprehensive income 5,502
Common Stock issued through
dividend reinvestment, 19,480 shares 19 447 466
Cash dividends, $.79 per share (2,733) (2,733)
Shares acquired for treasury, 57,501 shares (1,427) (1,427)
------- ------- ------- ------- ------- -------
BALANCES AT DECEMBER 31, 2001 $ 3,579 $29,207 $15,979 $ 1,043 $(3,508) $46,300
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2001 2000 1999
------------------------------- ---- ---- ----
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,895 $ 4,400 $ 4,292
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,222 1,447 1,157
Net amortization and accretion of securities 63 99 171
Amortization of intangible assets 130 129 30
Deferred tax benefit (368) (292) (262)
Provision for loan losses 3,503 1,890 2,303
Contribution of common stock to ESOP 249
FHLB stock dividend (309) (318) (280)
Net gain on sale of available-for-sale securities (317)
Change in accrued income receivable 684 (806) (575)
Change in accrued liabilities (120) 1,829 1,357
Change in other assets (913) (2,262) (1,873)
------- ------- -------
Net cash provided by operating activities 8,787 6,116 6,252
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available-for-sale 25,726 6,749 10,587
Purchases of securities available-for-sale (26,248) (9,349) (13,438)
Proceeds from maturities of securities
held-to-maturity 2,482 2,628 2,841
Purchases of securities held-to-maturity (741) (2,450) (1,347)
Proceeds from sale of equity securities 323
Change in interest-bearing deposits in other banks (448) (10) (11)
Net increase in loans (62,994) (38,705) (65,553)
Purchases of premises and equipment (639) (844) (2,686)
Purchases of insurance contracts (2,165) (905) (460)
------- ------- -------
Net cash used in investing activities (65,027) (42,886) (69,744)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits 23,490 27,040 58,653
Cash and cash equivalents received in assumption of
deposits, net of assets acquired 19,361
Cash dividends (2,733) (2,074) (1,877)
Cash paid in lieu of fractional shares in stock split (15)
Proceeds from issuance of common stock 466 317 632
Purchases of treasury stock (1,427) (1,892) (189)
Change in securities sold under agreements to repurchase 10,929 1,557 (2,278)
Proceeds from obligated mandatorily redeemable
capital securities of subsidiary trust 5,000
Proceeds from long-term borrowings 54,125 30,250 8,500
Repayment of long-term borrowings (13,615) (25,629) (9,818)
Change in other short-term borrowings (3,276) (2,230) (3,194)
------- ------- -------
Net cash provided by financing activities 67,959 32,339 69,775
------- ------- -------
CASH AND CASH EQUIVALENTS:
Change in cash and cash equivalents 11,719 (4,431) 6,283
Cash and cash equivalents at beginning of year 14,569 19,000 12,717
------- ------- -------
Cash and cash equivalents at end of year $26,288 $14,569 $19,000
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $25,155 $22,456 $17,496
Income taxes 2,455 1,655 2,075
See accompanying notes to consolidated financial statements
Note A - Summary of Significant Accounting Policies
Unless otherwise indicated, amounts are in thousands, except per share data.
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 Ohio Valley Statutory Trust I, a special purpose financing
entity. All material intercompany accounts and transactions have been
eliminated.
Industry Segment Information: The Company is primarily engaged in the business
of commercial and retail banking and trust services, with operations conducted
through 21 offices located in central and southeastern Ohio as well as western
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 accounting principles generally accepted
in the United States of America 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, short-term
borrowings 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 could 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. Other
securities such as Federal Home Loan Bank stock are carried at cost.
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. Securities are written down to fair value when a decline in
fair value is not temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
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. 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 probable 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.
Concentrations of Credit Risk:
The Company, through its subsidiaries, grants residential, consumer and
commercial loans to customers located primarily in the southeastern Ohio and
western West Virginia areas.
The following represents the composition of the loan portfolio at December 31,
2001:
% of Total Loans
----------------
Real Estate loans ............................ 44.47%
Commercial and industrial loans............... 34.04%
Consumer loans ............................... 21.32%
All other loans .............................. .17%
-------
100.00%
=======
Approximately 4.81% 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, 2001, the Bank's primary
correspondent balances were $9,000 in Federal funds sold at National City Bank,
Cleveland, Ohio and $6,879 on deposit 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 the 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 $289 at December 31,
2001 and $34 at December 31, 2000. Transfers of loans to other real estate were
$443 in 2001 and $139 in 2000. There were no transfers of loans to other real
estate in 1999.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Per Share Amounts: Earnings per share is based on net income divided by the
following weighted average number of shares outstanding during the periods:
3,461,856 for 2001, 3,516,205 for 2000 and 3,530,203 for 1999. The Company had
no dilutive securities outstanding for any period presented.
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.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Business Combinations: In June 2001, the Financial Accounting Standings Board
(FASB)issued Statement of Financial Accounting Standards (SFAS) No. 141
"Business Combinations". SFAS No. 141 requires all business combinations within
its scope to be accounted for using the purchase method, rather than the
pooling-of-interests method. The provisions of this statement applied to all
business combinations initiated after June 30, 2001. The adoption of this
statement would only impact the Company's financial statements if it entered
into a business combination. As of December 31, 2001, the Company had not
initiated any business combinations since June 30, 2001.
Goodwill: In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which addresses the accounting for such assets arising from
prior and future business combinations. Upon the adoption of this statement,
goodwill arising from business combinations will no longer be amortized, but
rather will be assessed regularly for impairment, with any such impairment
recognized as a reduction to earnings in the period identified. Other identified
intangible assets, such as core deposit intangible assets, will continue to be
amortized over their estimated useful lives. The Company will be required to
adopt this statement on January 1, 2002. The adoption of this statement will no
materially impact the Company's financial statements.
Reclassifications: The consolidated financial statements for 2000 and 1999 have
been reclassified to conform with the presentation for 2001. 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:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2001 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $ 1,990 $ 3 $ 1,993
U.S. Government agency securities 51,494 1,578 $ (16) 53,056
Mortgage-backed securities 1,719 15 1,734
Marketable equity securities 4,776 4,776
------- ------ ----- -------
Total securities $59,979 $1,596 $ (16) $61,559
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
Obligations of states and
political subdivisions $13,765 $ 481 $ (25) $14,221
Mortgage-backed securities 208 (8) 200
------- ------ ----- -------
Total securities $13,973 $ 481 $ (33) $14,421
======= ====== ===== =======
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2000 Cost Gains Losses Value
- ----------------- ---- ----- ------ -----
Securities Available-for-Sale
-----------------------------
U.S. Treasury securities $ 2,499 $ 9 $ 2,508
U.S. Government agency securities 50,127 711 $ (42) 50,796
Mortgage-backed securities 2,065 1 (18) 2,048
Marketable equity securities 4,467 4,467
------- ------ ----- -------
Total securities $59,158 $ 721 $ (60) $59,819
======= ====== ===== =======
Securities Held-to-Maturity
---------------------------
Obligations of states and
political subdivisions $15,503 $ 383 $ (25) 15,861
Mortgage-backed securities 264 1 (15) 250
------- ------ ----- -------
Total securities $15,767 $ 384 $ (40) $16,111
======= ====== ===== =======
Securities with a carrying value of approximately $63,455 at December 31,
2001 and $63,488 at December 31, 2000 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, 2001, 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 $26,387 $26,602 $ 1,645 $ 1,685
Due in one to five years 25,097 26,453 5,265 5,528
Due in five to ten years 2,000 1,994 4,945 5,065
Due after ten years 1,910 1,943
Mortgage-backed securities 1,719 1,734 208 200
------- ------- ------- -------
Total debt securities $55,203 $56,783 $13,973 $14,421
======= ======= ======= =======
There were no sales of debt and equity securities during 2001 and 2000.
Proceeds from the sale of equity securities in 1999 were $323 with gross gains
of $317 realized.
NOTE C - LOANS
Loans are comprised of the following at December 31:
2001 2000
---- ----
Real estate loans $226,212 $209,724
Commercial and industrial loans 173,154 139,826
Consumer loans 108,437 98,013
All other loans 857 740
-------- --------
Total Loans $508,660 $448,303
======== ========
NOTE D - ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses for
years ended December 31:
2001 2000 1999
---- ---- ----
Balance, beginning of year $5,385 $5,055 $4,277
Loans charged-off:
Real estate 659 92 41
Commercial 620 61 454
Consumer 1,903 1,642 1,298
------ ------ ------
Total loans charged-off 3,182 1,795 1,793
Recoveries of loans:
Real estate 69 4 13
Commercial 17 23
Consumer 459 231 232
------ ------ ------
Total recoveries of loans 545 235 268
Net loan charge-offs (2,637) (1,560) (1,525)
Provision charged to operations 3,503 1,890 2,303
------ ------ ------
Balance, end of year $6,251 $5,385 $5,055
====== ====== ======
Information regarding impaired loans is as follows:
2001 2000
---- ----
Balance of impaired loans $ 960 $1,233
====== ======
Portion of impaired loan balance for which
an allowance for credit losses is allocated $ 960 $1,233
====== ======
Portion of allowance for loan losses allocated
to the impaired loan balance $ 300 $ 530
====== ======
Average investment in impaired loans for the year $1,013 $1,266
====== ======
Past due - 90 days or more and still accruing $3,013 $3,691
====== ======
Nonaccrual $3,297 $2,948
====== ======
Interest on impaired loans was not material for years ending 2001, 2000 or 1999.
NOTE E - PREMISES AND EQUIPMENT
Following is a summary of premises and equipment at December 31:
2001 2000
---- ----
Land $ 1,376 $ 1,376
Buildings 8,661 8,550
Furniture and equipment 8,040 7,512
------- -------
18,077 17,438
Less accumulated depreciation 9,375 8,153
------- -------
Total Premises and Equipment $ 8,702 $ 9,285
======= =======
The following is a summary of the future minimum lease payments for facilities
leased by the Company. Lease payments were $333 in 2001 and $344 in 2000.
2002 $ 328
2003 289
2004 185
2005 133
2006 96
Thereafter 51
------
$1,082
======
NOTE F - DEPOSITS
Following is a summary of interest-bearing deposits at December 31:
2001 2000
---- ----
NOW accounts $ 91,497 $ 80,336
Savings and Money Market 40,936 36,598
Time:
IRA accounts 36,634 34,683
Certificates of Deposit:
In denominations under $100,000 155,074 145,121
In denominations of $100,000 or more 74,985 87,972
-------- --------
Total time deposits 266,693 267,776
-------- --------
Total interest-bearing deposits $399,126 $384,710
======== ========
Following is a summary of total time deposits by remaining maturities at
December 31:
2001
------
Within one year $161,046
From one to two years 64,555
From two to three years 23,392
From three to four years 11,789
From four to five years 4,456
Thereafter 1,455
--------
Total $266,693
========
NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Following is a summary of securities sold under agreements to repurchase at
December 31:
2001 2000
---- ----
Balance outstanding at period end $29,274 $18,345
------- -------
Weighted average interest rate at period end 1.90% 5.28%
------- -------
Average amount outstanding during the year $19,893 $17,606
------- -------
Approximate weighted average interest rate
during the year 3.15% 4.88%
------- -------
Maximum amount outstanding as of any month-end $29,274 $22,690
------- -------
Securities underlying these agreements at
year-end were as follows:
Carrying value of securities $39,221 $39,177
------- -------
Fair Value $40,619 $39,635
------- -------
NOTE H - OTHER BORROWED FUNDS
Other borrowed funds at December 31, 2001 and 2000 are comprised of
advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal
Reserve Bank Notes.
FHLB Borrowings Promissory Notes FRB Notes Totals
--------------- ---------------- --------- -------
2001 $81,564 $ 3,792 $ 5,500 $90,856
2000 $44,753 $ 5,594 $ 3,275 $53,622
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $122,346
and $4,776 at December 31, 2001. Fixed rate FHLB advances mature through 2010
and have interest rates ranging from 4.30% to 6.62%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 2.05% to 7.00% and are due at various dates through a final maturity date of
October 24, 2002.
Scheduled principal payments over the next five years:
FHLB borrowings Promissory notes FRB Notes Total
--------------- ---------------- --------- -----
2002 $13,260 $3,792 $5,500 $22,552
2003 13,932 13,932
2004 14,486 14,486
2005 11,114 11,114
2006 14,605 14,605
Thereafter 14,167 14,167
------- ------ ------ -------
$81,564 $3,792 $5,500 $90,856
======= ====== ====== =======
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $29,000 at December 31,
2001 and $33,100 at December 31, 2000. Various investment securities from the
Bank used to collateralize FRB notes totaled $5,970 at December 31, 2001 and
$9,165 at December 31, 2000.
NOTE I - OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUST
On September 7, 2000 the Company completed the issuance of $5,000 at 10.60%
obligated mandatorily redeemable capital securities of a subsidiary trust (Trust
Preferred Securities) through a newly formed, wholly-owned subsidiary, Ohio
Valley Statutory Trust I (the "Trust Issuer"). The Trust Issuer invested the
total proceeds from the sale of trust preferred securities in a long-term
subordinated debenture issued by the parent company with a fixed rate of 10.60%
and a maturity date of September 7, 2030. The parent company used the net
proceeds from the sale of the subordinated debenture to help continue the
Company's stock repurchases and provide additional capital to the Bank to
support growth. The trust preferred securities were unsecured at December 31,
2001. A description of the trust preferred securities currently outstanding at
December 31, 2001 is presented below:
Issuing Date of Interest Maturity Principal
Entity Issuance Rate Date Balance
- ------------------- ----------------- -------- ----------------- ---------
Ohio Valley September 7, 2000 10.60% September 7, 2030 $5,000
Statutory Trust I
NOTE J - INCOME TAXES
The provision for federal income taxes consists of the following components:
2001 2000 1999
---- ---- ----
Current tax expense $2,278 $2,012 $1,908
Deferred tax expense (benefit) (368) (292) (262)
------ ------ ------
Total federal income taxes $1,910 $1,720 $1,646
====== ====== ======
The sources of gross deferred tax assets and gross deferred tax liabilities
at December 31:
2001 2000
---- ----
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $1,857 $1,486
Deferred compensation 599 502
Other 96 126
Items giving rise to deferred tax liabilities:
Investment accretion (40) (34)
Depreciation (19) (56)
FHLB stock dividends (544) (439)
Unrealized gain on securities available-for-sale (537) (225)
Other (4)
------ ------
Net deferred tax asset $1,412 $1,356
====== ======
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:
2001 2000 1999
---- ---- ----
Statutory tax $2,314 $2,081 $2,019
Effect of nontaxable interest
and dividends (263) (278) (297)
Nondeductible interest expense 42 49 46
Insurance contracts (176) (139) (117)
Other items (7) 7 (5)
------ ------ ------
Total federal income taxes $1,910 $1,720 $1,646
====== ====== ======
There were no taxes attributable to gains on sale of securities in 2001
and 2000.Taxes attributable to gains on sale of securities totaled $108 in 1999.
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. The Bank's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit, and financial
guarantees written, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for instruments recorded on the balance
sheet.
Following is a summary of such commitments at December 31:
2001 2000
----- -----
Fixed rate $ 2,075 $ 811
Variable rate 52,578 45,418
Standby letters of credit 9,659 5,906
The interest rate on fixed rate commitments ranged from 7.125% to 17.90% at
December 31, 2001.
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, 2001, was approximately
$7,084.
NOTE L - RELATED PARTY TRANSACTIONS
Certain directors, executive officers and companies in which they are
affiliated were loan customers during 2001. A summary of activity on these
borrower relationships with aggregate debt greater than $60 is as follows:
Total loans at January 1, 2001 $12,936
New loans 6,243
Repayments (6,140)
Other changes 98
-------
Total loans at December 31, 2001 $13,137
=======
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
$1,603.
NOTE M - EMPLOYEE BENEFITS
The Bank has a profit-sharing plan for the benefit of its employees and their
beneficiaries. Contributions to the plan are determined by the Board of
Directors. Contributions charged to expense were $134, $146 and $131 for 2001,
2000 and 1999.
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 154,914 and 167,598 at December
31, 2001 and 2000. In addition, the Bank made contributions to its ESOP Trust as
follows:
Years ended December 31
2001 2000 1999
---- ---- ----
Number of shares issued 0 0 7,500
===== ===== =====
Value of stock contributed $ 249
Cash contributed $ 123 $ 293 12
----- ----- -----
Total charged to expense $ 123 $ 293 $ 261
===== ===== =====
Life insurance contracts with a cash surrender value of $12,089 have been
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. 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 N - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes for the years ended
December 31, are as follow:
2001 2000 1999
Unrealized holding gains (losses) on ---- ---- ----
available-for-sale securities $ 920 $ 1,565 $(1,548)
Cumulative effect of securities transferred 253
Less: Reclassification adjustment for
gains (losses) later recognized in income 317
------- ------- -------
Net unrealized gain (losses) 920 1,565 (1,612)
Tax effect 313 532 (548)
------- ------- -------
Other comprehensive income $ 607 $ 1,033 $(1,064)
======= ======= =======
NOTE O - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Short-term Investments: For short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Securities: For securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments.
Loans: The fair value of fixed rate loans is estimated by discounting future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The
fair market value of commitments is not material at December 31, 2001 or 2000.
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.
In addition, other assets and liabilities that are not defined as financial
instruments were not included in the disclosures below, such as premises and
equipment and life insurance contracts.
The estimated fair values of the Company's financial instruments at December
31, are as follows:
2001 2000
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
Cash and short-term investments $ 27,552 $ 27,552 $ 15,385 $ 15,385
Securities 70,756 71,204 71,119 71,463
FHLB stock 4,776 4,776 4,467 4,467
Loans 502,409 507,459 442,918 445,730
Accrued interest receivable 3,420 3,420 4,104 4,104
Financial liabilities:
Deposits (455,861) (460,547) (432,371) (435,155)
Securities sold under agreements
to repurchase (29,274) (29,274) (18,345) (18,345)
Other borrowed funds (90,856) (92,076) (53,622) (53,539)
Obligated mandatorily redeemable
capital securities of subsidiary
trust (5,000) (5,250) (5,000) (5,167)
Accrued interest payable (5,177) (5,177) (6,096) (6,096)
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 P - REGULATORY MATTERS
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgements by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action that
could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year-end, consolidated actual capital levels (in thousands) and minimum
required levels for the Company and Bank 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
------ ----- ------ ----- ------ -----
2001
Total capital (to risk weighted assets)
Consolidated $55,242 10.7% $41,160 8.0% $51,450 10.0%
The Ohio Valley Bank Company $51,374 11.2% $36,570 8.0% $45,713 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $48,991 9.5% $20,580 4.0% $30,870 6.0%
The Ohio Valley Bank Company $45,658 10.0% $18,285 4.0% $27,428 6.0%
Tier 1 capital (to average assets)
Consolidated $48,991 7.9% $24,910 4.0% $31,137 5.0%
The Ohio Valley Bank Company $45,658 7.4% $24,593 4.0% $30,742 5.0%
2000
Total capital (to risk weighted assets)
Consolidated $52,975 12.5% $34,012 8.0% $42,515 10.0%
The Ohio Valley Bank Company $48,391 12.4% $31,129 8.0% $38,912 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $47,660 11.2% $17,006 4.0% $25,509 6.0%
The Ohio Valley Bank Company $43,525 11.2% $15,565 4.0% $23,347 6.0%
Tier 1 capital (to average assets)
Consolidated $47,660 8.5% $22,488 4.0% $28,110 5.0%
The Ohio Valley Bank Company $43,525 7.9% $22,009 4.0% $27,511 5.0%
The Company and Bank at year-end 2001 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 Bank's 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, 2001, approximately $10,911 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 Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Below is condensed financial information of Ohio Valley Banc Corp. In this
information, the parent's investment in subsidiaries is stated at cost plus
equity in undistributed earnings of the subsidiaries since acquisition. This
information should be read in conjunction with the consolidated financial
statements.
CONDENSED STATEMENTS OF CONDITION at December 31:
Assets 2001 2000
---- ----
Cash and cash equivalents $ 457 $ 50
Interest-bearing balances with subsidiaries 4 259
Investment in subsidiaries 49,756 47,045
Notes receivable - subsidiaries 3,089 5,947
Other assets 2,105 2,115
------- -------
Total assets $55,411 $55,416
======= =======
Liabilities
Notes Payable $ 3,787 $ 5,576
Subordinated debentures 5,155 5,155
Other liabilities 169 193
------- -------
Total liabilities 9,111 10,924
------- -------
Shareholders' Equity
Total shareholders' equity 46,300 44,492
------- -------
Total liabilities and shareholders' equity $55,411 $55,416
======= =======
CONDENSED STATEMENTS OF INCOME
Years ended December 31:
2001 2000 1999
---- ---- ----
Income:
Interest on deposits $ 2 $ 33 $ 102
Interest on loans 3 6 12
Interest on notes 282 474 502
Other operating income 8 19
Dividends from bank subsidiary 3,317 925 425
Expenses:
Interest on notes 308 343 263
Interest on subordinated debentures 546 173
Operating expenses 229 144 153
------ ------ ------
Income before federal income taxes and equity
in undistributed earnings of subsidiaries 2,529 797 625
Income tax benefit (expense) 262 42 (68)
Equity in undistributed earnings of subsidiaries 2,104 3,561 3,735
------ ------ ------
Net Income $4,895 $4,400 $4,292
====== ====== ======
NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31: 2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $4,895 $4,400 $4,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries(2,104) (3,561) (3,735)
Change in other assets 10 (2,014) (36)
Change in other liabilities (24) (15) (8)
------ ------ ------
Net cash provided by operating activities 2,777 (1,190) 513
------ ------ ------
Cash flows from investing activities:
Capital contributions to subsidiaries (6,090)
Proceeds from repayment of long-term note
from subsidiary 4,000
Change in other long-term investments (156)
Change in other short-term investments 2,860 (645) (948)
Change in subsidiary line of credit (2) 153 (186)
Change in interest-bearing deposits 255 801 5,744
------ ------ ------
Net cash used in investing activities 3,113 (1,937) 4,610
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,155
Change in other short-term borrowings (1,789) 1,621 (3,923)
Cash dividends paid (2,733) (2,074) (1,877)
Cash paid in lieu of fractional shares in stock split (15)
Proceeds from issuance of common stock 466 317 881
Purchases of treasury stock (1,427) (1,892) (189)
------ ------ ------
Net cash used in financing activities (5,483) 3,127 (5,123)
------ ------ ------
Cash and cash equivalents:
Change in cash and cash equivalents 407 0 0
Cash and cash equivalents at beginning of year 50 50 50
------ ------ ------
Cash and cash equivalents at end of year $ 457 $ 50 $ 50
====== ====== ======
NOTE R - ACQUISITION AND INTANGIBLE ASSETS
On September 24, 1999, the Bank acquired from Huntington National Bank
(HNB) certain assets and assumed certain deposits and other liabilities in
accordance with a purchase and assumption agreement of the same date.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have been recorded
based on their estimated fair market value at the date of acquisition. A summary
of assets acquired and liabilities assumed follow:
Cash $ 428
Premises and equipment 885
Funds received from HNB 18,933
Goodwill 1,442
-------
Total assets $21,688
=======
Deposit liabilities $21,590
Accrued interest payable and
other liabilities 98
-------
Total liabilities $21,688
=======
Goodwill totaled $1,267 at December 31, 2001 and is being amortized over an
original term of 12 years on a straight line basis. Amortization expense for
goodwill totaled $130 for 2001 and $129 for 2000.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(dollars in thousands, except per share data)
Quarters Ended
2001 Mar. 31 Jun. 30 Sept. 30 Dec. 31
Total interest income $11,523 $11,867 $12,159 $12,036
Total interest expense 6,354 6,081 6,065 5,735
Net interest income 5,169 5,786 6,094 6,301
Provision for loan losses 427 646 1,092 1,338
Net Income 1,107 1,154 1,220 1,414
Net income per share $ .32 $ .33 $ .35 $ .41
2000
Total interest income $10,652 $11,100 $11,627 $11,816
Total interest expense 5,380 5,778 6,282 6,625
Net interest income 5,272 5,322 5,345 5,191
Provision for loan losses 302 407 456 725
Net Income 1,052 991 1,099 1,258
Net income per share $ .30 $ .28 $ .31 $ .36
1999
Total interest income $ 9,437 $ 9,890 $10,214 $10,465
Total interest expense 4,376 4,558 4,765 5,138
Net interest income 5,061 5,332 5,449 5,327
Provision for loan losses 448 557 438 861
Net Income 1,032 1,141 1,097 1,022
Net income per share $ .29 $ .33 $ .31 $ .29
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, 2001 and 2000 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, 2001. 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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with auditing standards generally accepted in the United
States of America.
/s/CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
January 31, 2002
SUMMARY OF COMMON STOCK DATA
OHIO VALLEY BANC CORP.
Years ended December 31, 2001 and 2000
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 2001 and 2000. The range of market price is compiled from data
provided by the broker based on limited trading. The quotations are inter-dealer
prices, without retail markup, markdown, or commission, and may not represent
actual transactions.
2001 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $24.50 $25.25 $24.75 $25.75
Second Quarter 24.50 25.75 24.88 26.95
Third Quarter 24.50 25.05 24.95 26.00
Fourth Quarter 21.40 25.75 23.50 26.00
2000 Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
First Quarter $29.50 $33.50 $30.00 $34.75
Second Quarter 26.00 29.50 26.75 31.00
Third Quarter 25.75 26.63 26.25 28.00
Fourth Quarter 24.75 26.56 25.13 27.251
Dividends per share 2001 2000
- ------------------- ---- ----
First Quarter $.15 $.14
Second Quarter .16 .15
Third Quarter .16 .15
Fourth Quarter
Normal dividend .16 .15
Special dividend .16
Shown above is a table which reflects the dividends paid per share 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, 2001 the
number of holders of common stock was 1,855 an increase from 1,839 shareholders
at December 31, 2000.
On December 11, 2001, the Company's Board of Directors declared a special
cash dividend of $.16 per share on the outstanding shares of Ohio Valley Banc
Corp stock payable on December 31, 2001 to shareholders of record on December
21, 2001. The special dividend was approved in large part to help increase
shareholder return and serve as a reinvestment back in the community.
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 accounting principles generally accepted in the
United States of America (GAAP) 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 generated earnings of $4,895 for 2001 an increase
of 11.3% from 2000. Net income was up 2.5% in 2000. Net income per share of
$1.41 for 2001 represented continued growth from $1.25 in 2000 and $1.22 in
1999. Asset growth for 2001 was $73,341 or 13.1% which resulted in total assets
at year-end of $634,999. The Company's return on assets (ROA) increased to .83%
for 2001 compared to 2000's ROA of .81%. The Company's 2000 ROA represented a
decrease compared to 1999's ROA of .88%. Return on equity (ROE) was 10.80% for
2001 compared to 10.29% for 2000 and 1999. The average of the bid and ask price
for the Company's stock was $24.20 at December 31, 2001 compared to $25.375 at
year-end 2000 and $33.625 at year-end 1999.
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, 2001. 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) increased
$2,193 in 2001, an increase of 10.21% compared to the $21,487 earned in 2000.
This increase was primarily attributable to an increase in interest-earning
assets as well as a decrease in funding costs resulting in a higher net interest
margin. For 2000, net interest income decreased .27% compared to 1999. The
decline in net interest income for 2000 was attributable to an increase in
funding costs which resulted in a lower net interest margin.
For 2001, average earning assets grew by 8.4% as compared to growth of
11.3% in 2000. Driving the growth in earning assets was the growth in average
loan balances. Average total loans expanded $41,833 or 9.7% from 2000 and
represented 85.7% of earning assets. This compares to average loan growth of
13.0% for 2000 and loans representing 84.7% of earning assets. Management
focuses on generating loan growth as this portion of earning assets provides the
greatest return to the Company. Although loans comprise a larger percentage of
earning assets, management is comfortable with the current level of loans based
on collateral values, the balance of the allowance for loan losses and the
Company's well-capitalized status. Average securities declined from 15.9% of
earning assets for 1999 to 12.6% in 2001. Management maintains securities at a
dollar level adequate enough to provide ample liquidity and cover pledging
requirements.
Average interest-bearing liabilities increased 8.7% between 2000 and
2001 and increased 12.9% between 1999 and 2000. Although the composition of
interest-bearing liabilities consists mostly of time deposits, which have
increased from 53.6% of interest-bearing liabilities in 1999 to 54.4% in 2001,
most of the emphasis has shifted to other borrowed funds and NOW accounts.
Borrowed funds have increased from 12.8% of interest-bearing liabilities in 1999
to 15.4% in 2001. The use of borrowed funds, particularly FHLB borrowings, has
been a cost-effective funding source for the Company's positive loan growth. The
average cost of borrowed funds for 2001 is 5.81% compared to time deposits
average cost of 5.93%. Management has also been effective in generating
additional deposits through NOW accounts, which have increased from 16.7% of
interest-bearing liabilities in 1999 to 18.2% in 2001. NOW account balances were
influenced by the growth in the Company's Gold Club product and maintained an
average cost that was less than traditional time deposits.
The net interest margin increased .07% to 4.28% in 2001 from 4.21% in
2000. This is compared to a .49% decrease in the net interest margin in 2000.
Contributing to the increase in net interest margin in 2001 was the increase in
the net interest spread of .13%. The decrease in yield on earning assets of .27%
was completely offset by the larger decrease in funding costs of .40%.
Contributing to the decline in yield on earning assets was a decrease in the
return on average loans of .23% from 2000 combined with higher average balances
in loans. Total interest expense was limited to a minimal increase in relation
to the cost of borrowings decreasing .19% and time deposits decreasing .10%,
largely due to the interest rate decreases that were evident in 2001.
Additionally, the cost of NOW accounts decreased 1.34%. The impact of interest
free funds on the net interest margin decreased from .67% in 2000 to .61% in
2001. The .06% decrease in the contribution of interest free funding sources
combined with the .13% increase in the net interest spread yielded the .07%
increase in the net interest margin. The 2000 decrease in net interest margin
was due to a .51% decrease in net interest spread with increases in asset yields
of .12% being completely offset by increases in funding costs of .63%. The
decrease in net interest spread was partially offset by an increase from
interest free funding sources of .02%.
NONINTEREST INCOME AND EXPENSE
Total noninterest income increased $1,271 a 32.9% gain over 2000. Total
noninterest income, excluding securities gains and losses, increased 37.1% in
2000. Driving the Company's growth in noninterest income was the increase in
service charge income on deposit accounts which was up $987 in 2001 and $779 in
2000, impacted by the implementation of new products and services in the fourth
quarter of 2000 as well as growth in transaction account balances. Management
does not anticipate the increases in service charge income to be as significant
in 2002 as compared to 2001. Income earned on life insurance contracts from the
Company's supplemental retirement program was up $114 in 2001 and $75 in 2000.
Other operating income increased $165 over 2000 driven by the Company's minority
investments in insurance subsidiaries ProFinance Holdings Corporation and BSG
Title Services Agency, LLC which contributed $206 in 2001 as compared to $42 in
2000. Additionally, other operating income increased $197 over 1999 due to gains
in fee income from debit and credit card transactions, commissions earned from
loan insurance sales and loan service fees.
Total noninterest expense increased $1,193 or 7.0% in 2001 and $918 or
5.7% in 2000. The most significant expense in this category is salary and
employee benefits which increased $515 or 5.5% from 2000 to 2001. Contributing
most to this increase were annual merit increases, rising benefit costs and
increases to incentive compensation plans in relation to the successful growth
in earnings experienced in 2001. An increase in the Company's full-time
equivalent employee base from 237 at year-end 2000 to 249 at year-end 2001 also
contributed to the growth in salary and employee benefit expense. The Company's
efficiency ratio improved over last year as a result of the growth in revenue
sources (net interest income and noninterest income) outpacing the growth in
noninterest expense. The efficiency ratio for 2001 improved to 62.5% from 66.3%
in 2000. Salaries and employee benefits expense increased only $110 or 1.2% from
1999 to 2000 largely due to a decrease in the number of full-time equivalent
employees as well as the increased emphasis on reallocating employee
responsibilities as opposed to hiring new individuals. The growth in additional
offices and fixed assets experienced in 1999 and 2000 has been stable throughout
2001. This has provided for the decrease in occupancy expense and furniture and
equipment expense, which were collectively down $194 or 7.5% in 2001.
Corporation franchise tax increased $202 from 2000 to 2001 due to capital growth
at the Bank level. Data processing as well as other operating expense were up
$16 and $654 over 2000 due to new computer software depreciation, general
increases in overhead expenses related to continuing growth and inflationary
increases.
FINANCIAL CONDITION:
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 balance of total securities remained relatively stable compared to
year-end 2000 but the ratio of securities to total assets declined to 11.9% at
December 31, 2001 compared to 13.5% at December 31, 2000. The Company's demand
for securities declined in 2001 largely due to the decline in yield on
reinvestment opportunities. The portfolio consists primarily of U.S. Government
agency bonds which comprise 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 2001 was 5.60% as compared to 6.54% at year-end
2000. 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.
LOANS
In 2001, total loans increased $60,357 or 13.5% to reach $508,660. The
largest contributor was commercial loans which experienced growth of $33,328 or
23.8%. The commercial loan area originated nearly $113,000 in loans for 2001.
Approximately 78% of these loans were originated in Gallia, Jackson, Pike and
Franklin counties and 14% were originated from the West Virginia markets. Like
many financial institutions, the Company's commercial loan growth was impacted
by lower interest rates experienced during 2001. This favorable interest rate
environment as well as the success experienced in the Company's newer markets
such as West Virginia contributed to a higher volume of business opportunities
that drove commercial loan growth. In 2001, real estate loans grew $16,488, an
increase over the growth of $8,099 generated in 2000. As with commercial loans,
the Company's real estate growth was also impacted by lower interest rates
experienced during 2001 which prompted significant increases in loan refinancing
opportunities. With the Company's expansion into new markets, approximately two
thirds of real estate originations occurred 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. In 2000, the Bank began offering
secondary market loans to further enhance its customer service and loan pricing.
Consumer loans expanded by $10,424 representing a 10.6% gain. The largest
portion of consumer loans were originated through indirect lending, primarily
from area automobile dealers, and are subject to the same underwriting as our
regular loans. At December 31, 2001, indirect loan balances represented over one
third of total consumer loans. Tables V, VI, and VII have been provided to
enhance the understanding of the loan portfolio and the allowance for potential
loan 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 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,
2001 was .56% up over .36% at December 31, 2000 due mostly to the $1,077
increase in net charge-offs, particularly within the consumer and commercial
loan portfolio. This increase in net charge-offs was a result of stronger
emphasis being placed on improving the asset quality within the Company's 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 $6,310 or 1.24% of outstanding loan
balances at December 31, 2001 compared to $6,639 or 1.48% of outstanding loan
balances at the end of 2000.
For 2001, provision expense was up by $1,613 compared to the provision
expense for 2000. This increase in provision expense was largely associated with
the increases in net charge-offs as a percent of average total loans as well as
the growth in commercial loans which generally require a higher allocation of
the allowance for loan losses based on the risks associated with this loan type.
At December 31, 2001, the allowance for loan losses totaled $6,251, or 1.23% of
total loans, up $866 from December 31, 2000 when the allowance was 1.20% of
total loans. Management increased the allowance as a percent of total loans in
2001 based on a general decline in economic conditions and feels that it is
adequate to absorb probable losses in the portfolio based on collateral values
as well as a high relative volume of real estate mortgages. Management will
continue to monitor the allowance for loan losses and make changes as necessary
to maintain adequate levels relative to the ongoing status of nonperforming
loans.
DEPOSITS
Interest-earning assets are funded primarily by core deposits. The
accompanying table IV shows the composition of total deposits as of December 31,
2001. Total deposits grew $23,490 or 5.4% to reach $455,861 by year-end 2001.
Leading the growth in deposits were savings and interest-bearing demand deposits
which increased by $14,835 or 13.8%. The Company's Gold Club product, offering
customers a NOW account with other banking benefits, generated over one third of
the overall growth in total deposits. Furthermore, non-interest bearing demand
deposits increased $9,074 or 19.0% during 2001. The growth within these segments
of the deposit portfolio was offset by a decline in time deposits of $1,083 or
.4%, particularly jumbo certificates of deposit. Decreases in interest rates
throughout 2001 caused management to be less aggressive in its pricing of the CD
portfolio and shifted its loan funding efforts from traditional retail sources
to less costly sources of funds (i.e. Federal Home Loan Bank borrowings). With
the expansion in new markets, management expects continued growth in deposits in
2002.
FUNDS BORROWED
During 2001, the Company considered borrowed funds as one of its
primary funding sources as these balances grew to $90,856 at December 31, 2001
compared to $53,622 at December 31, 2000. Other funds borrowed consist primarily
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 and FHLB stock.
Management was able to utilize FHLB advances to fund long-term assets and to
fund short-term liquidity needs due to the lower interest rates experienced
throughout 2001 and the ability to borrow for longer time periods as compared to
traditional retail sources. Based on historical low interest rates, Management
was able to extend the average term of its funding sources to protect against
rising interest rates. At December 31, 2001, the balance of FHLB advances
totaled $81,564 compared to $44,753 at December 31, 2000. Management will
continue to evaluate borrowings from the FHLB as an alternative funding source
in 2002. Promissory notes are primarily associated with funding loans at Loan
Central and were issued with terms of one year or 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 $46,300 at December 31, 2001, compared to $44,492
at December 31, 2000, which represents growth of 4.1%. All of the capital ratios
exceeded the regulatory minimum guidelines as identified in Note P "Regulatory
Matters".
Cash dividends paid of $2,733 for 2001 represents a 31.8% increase over
the cash dividends paid during 2000. The increase in cash dividends paid is
largely due to the special "freedom" dividend paid in the fourth quarter of $.16
per share which increased the number of dividend distributions to five as
compared to four dividend distributions in 2000. Management deemed the special
dividend necessary to increase shareholder return and contribute back to the
community in light of the tragic events that impacted the economy in 2001.
Additionally, the increase in cash dividends for 2001 was impacted by an
increase in the dividend rate 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 2001, the Company issued 19,480 shares under the dividend
reinvestment and stock purchase plan. At December 31, 2001, approximately 74% of
the shareholders were enrolled in the dividend reinvestment plan. Members of the
plan invested $466 in 2001 which represents 17% of year-to-date dividends paid.
As part of the Company's stock repurchase program, management was able to
utilize the proceeds from reinvested dividends and voluntary cash to purchase
shares on the open market and redistribute those shares through the dividend
reinvestment plan without the need for the issuance of common stock. The stock
repurchase program limits the purchase of shares to 5% of the total shares
outstanding. At December 31, 2001, the Company had over 42,400 shares available
to purchase. In addition, the Company's Board of Directors recently voted to
extend the maturity date of the stock repurchase program to February 10, 2003.
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 exceeds the amount of interest sensitive
liabilities, and is considered negative when the amount interest sensitive
liabilities exceeds 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. Based on the gap model, the
Company was liability sensitive in the short term and asset sensitive for
periods over five years.
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 interest-bearing
financial instruments. The table presents information strictly by expected
maturity date without regard for repricing dates for variable rate products.
Noninterest-bearing checking deposits assume an annual decay rate of 14% and
savings and interest-bearing checking accounts assume an annual decay rate of
16% based on the Company's historical experience. A fundamental difference
between the table and the gap model previously discussed is that the table
presents financial intruments based on the date of expected cash flows while gap
analysis only focuses on repricing characteristics of financial instruments.
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
$61,559 in securities as available for sale at December 31, 2001. 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 December 31,
2001, the Bank could borrow an additional $43,886 from the Federal Home Loan
Bank. The Bank also has the ability to purchase federal funds from several of
its correspondent banks. Furthermore, the Company experienced an increase of
$11,719 in cash and cash equivalents for the twelve months ended December 31,
2001. See the consolidated statement of cash flows for further cash flow
information. 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.
INFLATION
Consolidated financial data included herein has been prepared in
accordance with 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
------------------------------------------------------------------------------------
2001 2000 1999
(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 $ 1,068 33 3.03% $ 729 $ 34 4.63% $ 781 $ 30 3.87%
with banks
Federal funds sold 8,125 285 3.51 3,418 208 6.10 2,485 121 4.87
Securities:
Taxable 54,755 3,188 5.82 58,106 3,690 6.35 56,153 3,490 6.21
Tax exempt 15,034 1,079 7.18 15,898 1,137 7.15 16,849 1,183 7.02
Loans 473,998 43,330 9.14 432,165 40,483 9.37 382,353 35,559 9.30
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
earning assets 552,980 47,915 8.66% 510,316 45,552 8.93% 458,621 40,383 8.81%
Noninterest-earning assets:
Cash and due from banks 13,935 12,851 13,146
Other nonearning assets 28,970 26,257 21,517
Allowance for loan losses (5,692) (5,118) (4,652)
-------- -------- --------
Total noninterest-
earning assets 37,213 33,990 30,011
Total assets $590,193 $544,306 $488,632
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $88,340 2,873 3.25% $ 82,307 3,780 4.59% $ 66,105 2,514 3.80%
Savings and Money Market 38,379 724 1.89 42,430 1,091 2.57 52,628 1,426 2.71
Time deposits 264,269 15,684 5.93 256,846 15,496 6.03 212,091 11,662 5.50
Repurchase agreements 19,893 627 3.15 17,606 859 4.88 13,961 510 3.65
Other borrowed money 74,525 4,327 5.81 47,311 2,839 6.00 50,539 2,725 5.39
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-
bearing liabilities 485,406 24,235 4.99% 446,500 24,065 5.39% 395,324 18,837 4.76%
Noninterest-bearing liabilities:
Demand deposit accounts 50,267 47,291 45,226
Other liabilities 9,191 7,742 6,352
-------- -------- ------
Total noninterest-
bearing liabilities 59,458 55,033 51,578
Shareholders' equity 45,329 42,773 41,730
-------- -------- --------
Total liabilities and
shareholders' equity $590,193 $544,306 $488,632
======== ======== ========
Net interest earnings $23,680 $21,487 $21,546
======= ======= =======
Net interest earnings as a percent
of interest-earning assets 4.28% 4.21% 4.70%
----- ----- -----
Net interest rate spread 3.67% 3.54% 4.05%
----- ----- -----
Average interest-bearing liabilities
to average earning assets 87.78% 87.49% 86.20%
===== ===== =====
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
2001 2000
----------------------------- ----------------------------
(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 $ 13 $ (14) $ (1) $ (2) $ 5 $ 3
Federal funds sold 194 (117) 77 52 35 87
Securities:
Taxable (206) (296) (502) 123 78 201
Tax exempt (62) 4 (58) (68) 22 (46)
Loans 3,843 (996) 2,847 4,665 259 4,924
------- ------- ------- ------- ------- -------
Total interest income 3,782 (1,419) 2,363 4,770 399 5,169
INTEREST EXPENSE
- ----------------
NOW accounts 261 (1,168) (907) 685 580 1,265
Savings and Money Market (97) (270) (367) (265) (70) (335)
Time deposits 443 (255) 188 2,625 1,209 3,834
Repurchase agreements 101 (333) (232) 152 197 349
Other borrowed money 1,583 (95) 1,488 (181) 296 115
------- ------- ------- ------- ------- -------
Total interest expense 2,291 (2,121) 170 3,016 2,212 5,228
------- ------- ------- ------- ------- -------
Net interest earnings $ 1,491 $ 702 $ 2,193 $ 1,754 $(1,813) $ (59)
======= ======= ======= ======= ======= =======
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, 2001 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 $ 1,993 2.42%
Obligations of U.S. Government
agency securities 24,609 3.93% $26,453 6.31% $1,994 5.16%
Obligations of states and
political subdivisions 1,645 7.37% 5,265 8.02% 4,945 7.34% $1,910 7.75%
Mortgage-backed securities 5 8.00% 1,137 5.69% 800 5.63%
------- ---- ------- ---- ------ ---- ------ ----
Total debt securiities $28,247 4.04% $31,723 6.61% $8,076 6.60% $2,710 7.12%
======= ==== ======= ==== ====== ==== ====== ====
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)
2001 2000 1999
---- ---- ----
Interest-bearing deposits:
NOW accounts $ 91,497 $ 80,336 $ 74,447
Money Market 10,286 9,622 12,419
Savings accounts 30,650 26,976 29,676
IRA accounts 36,634 34,683 34,938
Certificates of Deposit 230,059 233,093 207,407
-------- -------- --------
399,126 384,710 358,887
Noninterest-bearing deposits:
Demand deposits 56,735 47,661 46,444
-------- -------- --------
Total deposits $455,861 $432,371 $405,331
======== ======== ========
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
Table V Years Ended December 31
(dollars in thousands) 2001 2000 1999 1998 1997
- ---------------------- ---- ---- ---- ---- ----
Commercial loans $1,831 $1,546 $1,278 $1,132 $ 879
Percentage of loans to total loans 34.21% 31.36% 29.33% 28.18% 28.79%
Real estate loans 874 609 270 264 218
Percentage of loans to total loans 44.47% 46.78% 49.04% 47.14% 43.07%
Consumer loans 1,935 1,629 1,444 1,360 949
Percentage of loans to total loans 21.32% 21.86% 21.63% 24.68% 28.14%
Unallocated 1,611 1,601 2,063 1,521 1,344
------- ------- ------- ------- -------
Allowance for Loan Losses $6,251 $5,385 $5,055 $4,277 $3,390
======= ======= ======= ======= =======
100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Ratio of net charge-offs
to average loans .56% .36% .40% .46% .38%
======= ======= ======= ======= =======
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) 2001 2000 1999 1998 1997
- ---------------------- ---- ---- ---- ---- ----
Impaired loans $ 960 $1,233 $1,413 $ 624 $ 430
Past due-90 days or more and
still accruing 3,013 3,691 3,711 2,106 3,607
Nonaccrual 3,297 2,948 2,953 981 1,019
Accruing loans past due 90
days or more to total loans .59% .82% .90% .61% 1.29%
Nonaccrual loans as a % of
total loans .65% .66% .72% .28% .36%
Impaired loans as a % of total loans .19% .28% .34% .18% .15%
Allowance for loans losses as a
% of total loans 1.23% 1.20% 1.23% 1.23% 1.21%
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 2001, the Company did not recognize any interest income on impaired
loans. Loans not included above that management feels have loss potential total
approximately $300. 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, 2001 Maturing/Repricing
(dollars in thousands)
Within After One but
One Year Within Five Years After Five Years Total
-------- ----------------- ---------------- -----
Commercial loans and other $ 91,425 $ 17,799 $ 64,787 $174,011
Real estate loans 37,865 21,902 166,445 226,212
Consumer loans 20,878 67,055 20,504 108,437
-------- -------- -------- --------
Total loans $150,168 $106,756 $251,736 $508,660
======== ======== ======== ========
Loans maturing or repricing after one year with:
Variable interest rates $ 31,514
Fixed interest rates 326,978
--------
Total $358,492
========
RATE SENSITIVITY ANALYSIS
Table VIII
(dollars in thousands)
As of December 31, 2001 Principal Amount Maturing in:
There- Fair Value
2002 2003 2004 2005 2006 after Total 12/31/01
Rate-Sensitive Assets:
Fixed interest rate loans $ 11,974 $ 8,682 $ 17,334 $ 24,766 $ 22,140 $256,457 $341,353 $345,120
Average interest rate 9.87% 11.78% 10.73% 9.85% 8.80% 8.01% 8.49%
Variable interest rate loans $ 47,418 $ 1,573 $ 3,651 $ 5,341 $ 6,278 $103,046 $167,307 $168,590
Average interest rate 6.52% 6.59% 6.33% 6.36% 7.14% 7.18% 6.94%
Fixed interest rate securities $ 28,032 $ 6,864 $ 10,685 $ 10,813 $ 2,000 $ 10,782 $ 69,176 $ 71,204
Average interest rate 4.04% 6.54% 6.57% 6.80% 5.82% 6.65% 5.57%
Federal funds sold $ 9,000 $ 9,000 $ 9,000
Average interest rate 1.70% 1.70%
Other interest-bearing assets $ 1,264 $ 1,264 $ 1,264
Average interest rate 0.75% 0.75%
Total Rate-Sensitive Assets $ 97,688 $17,119 $ 31,670 $ 40,920 $ 30,418 $370,285 $588,100 $595,178
Average interest rate 5.70% 9.20% 8.82% 8.59% 8.26% 7.74% 7.59%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 7,716 $ 6,667 $ 5,760 $ 4,976 $ 4,300 $ 27,316 $ 56,735 $ 56,735
Savings & Interest-bearing checking $ 21,032 $ 17,633 $ 14,794 $ 12,421 $ 10,435 $ 56,118 $132,433 $132,433
Average interest rate 1.93% 1.94% 1.95% 1.96% 1.97% 2.03% 1.98%
Time deposits $161,046 $ 64,555 $ 23,392 $ 11,789 $ 4,456 $ 1,455 $266,693 $271,379
Average interest rate 4.98% 4.95% 4.80% 5.18% 5.08% 7.19% 4.98%
Fixed interest rate borrowings $ 17,052 $ 13,932 $ 14,486 $ 11,114 $ 14,605 $ 19,167 $ 90,356 $ 91,576
Average interest rate 5.39% 5.37% 5.16% 5.26% 5.22% 6.89% 5.62%
Variable interest rate borrowings $ 34,774 $ 34,774 $ 34,774
Average interest rate 1.84% 1.84%
Total Rate-Sensitive Liabilities $241,620 $102,787 $ 58,432 $ 40,300 $ 33,796 $104,056 $580,991 $586,897
Average interest rate 4.13% 4.17% 3.69% 3.57% 3.53% 2.46% 3.72%
As of December 31, 2000 Principal Amount Maturing in:
There- Fair Value
2001 2002 2003 2004 2005 after Total 12/31/00
Total Rate-Sensitive Assets $ 66,219 $ 24,740 $ 38,861 $ 39,440 $ 34,503 $315,814 $519,577 $523,394
Average interest rate 10.25 9.06% 8.67% 9.34% 9.11% 8.34% 8.77%
Total Rate-Sensitive Liabilities $263,687 $ 77,381 $ 45,651 $ 18,203 $ 14,879 $ 89,537 $509,338 $512,038
Average interest rate 5.90% 5.31% 4.89% 3.33% 3.33% 3.78% 5.12%
KEY RATIOS
Table IX
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Return on average assets .83% .81% .88% 1.01% 1.02%
Return on average equity 10.80% 10.29% 10.29% 10.69% 10.98%
Dividend payout ratio 55.84% 47.14% 43.73% 37.13% 37.81%
Average equity to
average assets 7.68% 7.86% 8.54% 9.46% 9.32%
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 on or about August
4, 1997 of Ohio Valley Banc Corp of our report dated January 31, 2002 related to
the consolidated statements of condition of Ohio Valley Banc Corp. as of
December 31, 2001 and 2000 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, 2001, which report appears in the Registrant's
Annual Report to Shareholders incorporated by reference in Exhibit 13 of this
Form 10-K.
/s/CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
March 27, 2002