UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended:
JUNE 30, 2002
Commission file number: 0-20914
Ohio Valley Banc Corp
----------------------
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
31-1359191
----------
(I.R.S. Employer Identification Number)
420 Third Avenue. Gallipolis, Ohio 45631
----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 446-2631
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes
No
Indicate the number of shares outstanding of the issuers classes of common
stock, as of the latest practicable date.
Common stock, $1.00 stated value Outstanding at July 31, 2002
3,456,249 common shares
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
================================================================================
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Interim financial information required by Regulation 210.10-01 of Regulation S-X
is included in this Form 10Q as referenced below:
Consolidated Balance Sheets..................................... 1
Consolidated Statements of Income............................... 2
Condensed Consolidated Statements of Changes in
Shareholders' Equity......................................... 3
Condensed Consolidated Statements of Cash Flows................. 4
Notes to the Consolidated Financial Statements.................. 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 10
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk......................................... 14
Part II - Other Information
Other Information and Signatures................................ 15
Exhibit Index - 99.1 Certifications of CEO and CFO Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002....... 16
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
================================================================================
June 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 16,444 $ 17,288
Federal funds sold 6,325 9,000
------------- ------------
Total cash and cash equivalents 22,769 26,288
Interest-bearing balances with banks 1,492 1,264
Securities available-for-sale 57,859 61,559
Securities held-to-maturity
(estimated fair value: 2002 - $15,979,
2001 - $14,421) 15,305 13,973
Total loans 544,795 508,660
Less: Allowance for loan losses (6,746) (6,251)
------------- ------------
Net loans 538,049 502,409
Premises and equipment, net 8,281 8,702
Accrued income receivable 3,434 3,420
Intangible assets, net 1,201 1,267
Bank owned life insurance 12,380 12,089
Other assets 4,451 4,028
------------- -------------
Total assets $ 665,221 $ 634,999
============= =============
LIABILITIES
Noninterest-bearing deposits $ 57,929 $ 56,735
Interest-bearing deposits 422,991 399,126
------------- -------------
Total deposits 480,920 455,861
Securities sold under agreements to repurchase 26,121 29,274
Other borrowed funds 88,788 90,856
Obligated mandatorily redeemable capital securities
of subsidiary trust 13,500 5,000
Accrued liabilities 7,901 7,708
------------- -------------
Total liabilities 617,230 588,699
------------- -------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 2002 - 3,592,964 shares
issued, 2001 - 3,579,250 shares issued) 3,593 3,579
Additional paid-in capital 29,524 29,207
Retained earnings 17,442 15,979
Accumulated other comprehensive income 1,101 1,043
Treasury stock at cost (2002 - 136,715 shares,
2001 - 129,990 shares) (3,669) (3,508)
------------- -------------
Total shareholders' equity 47,991 46,300
------------- -------------
Total liabilities and
shareholders' equity $ 665,221 $ 634,999
============= =============
================================================================================
See notes to the consolidated financial statements.
1
OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Interest and dividend income:
Loans, including fees $ 10,940 $ 10,727 $ 21,587 $ 21,116
Securities:
Taxable 641 726 1,298 1,536
Tax exempt 185 192 361 385
Dividends 57 82 110 162
Other Interest 64 140 140 191
--------- --------- --------- ---------
11,887 11,867 23,496 23,390
Interest expense:
Deposits 3,740 4,922 7,640 10,178
Repurchase agreements 111 153 195 328
Other borrowed funds 1,088 874 2,201 1,664
Obligated mandatorily redeemable
capital securities of
subsidiary trust 251 132 390 265
--------- --------- --------- ---------
5,190 6,081 10,426 12,435
--------- --------- --------- ---------
Net interest income 6,697 5,786 13,070 10,955
Provision for loan losses 813 646 1,954 1,073
--------- --------- --------- ---------
Net interest income after provision 5,884 5,140 11,116 9,882
Noninterest income:
Service charges on deposit accounts 801 774 1,495 1,472
Trust fees 60 60 114 115
Income from bank owned insurance 168 146 340 284
Other 385 331 745 606
--------- --------- --------- ---------
1,414 1,311 2,694 2,477
Noninterest expense:
Salaries and employee benefits 2,700 2,591 5,319 4,954
Occupancy expense 324 310 635 626
Furniture and equipment expense 271 266 534 539
Data processing expense 145 115 291 222
Other 1,970 1,572 3,404 2,892
--------- --------- --------- ---------
5,410 4,854 10,183 9,233
--------- --------- --------- ---------
Income before income taxes 1,888 1,597 3,627 3,126
Provision for income taxes 535 443 1,022 865
--------- --------- --------- ---------
NET INCOME $ 1,353 $ 1,154 $ 2,605 $ 2,261
========= ========= ========= =========
Earnings per share $ 0.39 $ 0.33 $ 0.75 $ 0.65
========= ========= ========= =========
================================================================================
See notes to the consolidated financial statements.
2
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Balance at beginning of period $ 47,015 $ 44,957 $ 46,300 $ 44,492
Comprehensive income:
Net income 1,353 1,154 2,605 2,261
Net change in unrealized
gain or loss on available-for-sale
securities 372 25 58 411
--------- --------- --------- ---------
Total comprehensive income 1,725 1,179 2,663 2,672
Proceeds from issuance of common
stock through dividend reinvestment
plan 331
Cash dividends (588) (555) (1,142) (1,078)
Shares acquired for treasury (161) (155) (161) (660)
--------- --------- --------- ---------
Balance at end of period $ 47,991 $ 45,426 $ 47,991 $ 45,426
========= ========= ========= =========
Cash dividends per share $ 0.17 $ 0.16 $ 0.33 $ 0.31
========= ========= ========= =========
================================================================================
See notes to the consolidated financial statements.
3
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands, except per share data)
================================================================================
Six months ended June 30,
2002 2001
------------ ------------
Net cash provided by operating activities $ 4,558 $ 4,839
Investing activities
Proceeds from maturities of
securities available-for-sale 21,324 16,574
Purchases of securities available-
for-sale (17,437) (5,331)
Proceeds from maturities of
securities held-to-maturity 421 911
Purchases of securities held-to-maturity (1,773) (811)
Change in interest-bearing deposits
in other banks (228) (136)
Net increase in loans (37,594) (24,286)
Purchases of premises and equipment (156) (364)
Purchases of insurance contracts (530)
------------ ------------
Net cash used in investing activities (35,443) (13,973)
Financing activities
Change in deposits 25,059 (3,465)
Cash dividends (1,142) (1,078)
Proceeds from issuance of common stock 331
Purchases of treasury stock (161) (660)
Change in securities sold under
agreements to repurchase (3,153) 1,147
Proceeds from obligated mandatorily redeemable
capital securities of subsidiary trust 8,500
Proceeds from long-term borrowings 4,040 26,077
Repayment of long-term borrowings (7,557) (7,117)
Change in other short-term borrowings 1,449 (2,817)
------------ ------------
Net cash from financing activities 27,366 12,087
------------ ------------
Change in cash and cash equivalents (3,519) 2,953
Cash and cash equivalents at beginning of year 26,288 14,569
------------ ------------
Cash and cash equivalents at June 30, $ 22,769 $ 17,522
============ ============
Cash paid for interest $ 11,455 $ 12,915
Cash paid for income taxes 1,415 1,365
================================================================================
See notes to the consolidated financial statements.
4
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Ohio
Valley Banc Corp and its wholly owned subsidiaries The Ohio Valley Bank Company
and Loan Central, Inc., together referred to as the Company. All material
intercompany accounts and transactions have been eliminated in consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of Management,
are necessary to present fairly the consolidated financial position of Ohio
Valley Banc Corp. at June 30, 2002, and its results of operations and cash flows
for the periods presented. The accompanying consolidated financial statements do
not purport to contain all the necessary financial disclosures required by
accounting principles generally accepted in the United States of America (US
GAAP) that might otherwise be necessary in the circumstances. The Annual Report
for Ohio Valley Banc Corp for the year ended December 31, 2001, contains
consolidated financial statements and related notes which should be read in
conjunction with the accompanying consolidated financial statements.
The accounting and reporting policies followed by the Company conform to US GAAP
and to general practices within the financial services industry. The preparation
of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates. The
allowance for loan losses is particularly subject to change.
The provision for income taxes is based upon the effective income tax rate
expected to be applicable for the entire year.
For consolidated financial statement classification and cash flow reporting
purposes, cash and cash equivalents include cash on hand, noninterest-bearing
deposits with banks and federal funds sold. 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.
Earnings per share is computed based on the weighted average shares outstanding
during the period. Weighted average shares outstanding were 3,460,731 and
3,466,293 for the three months ending June 30, 2002 and June 30, 2001,
respectively. Weighted average shares outstanding were 3,459,987 and 3,473,414
for the six months ending June 30, 2002 and June 30, 2001, respectively.
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.
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 apply to all business combinations initiated after
June 30, 2001. The adoption of this statement will only impact the Company's
financial statements if it enters into a business combination.
================================================================================
(Continued)
5
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Also 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 is no longer amortized, but rather is
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, continue to be amortized over
their estimated useful lives. The Company adopted this statement on January 1,
2002, and did not materially impact its financial statements.
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the securities, as presented in the consolidated balance sheet are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
June 30, 2002 ---------- ----------- ------------ ---------
Securities Available-for-Sale
- -----------------------------
U.S. Government agency
securities $ 49,792 $ 1,616 $ 51,408
Mortgage-backed securities 1,513 52 1,565
Equity securities 4,886 4,886
---------- ----------- ------------ ---------
Total securities $ 56,191 $ 1,668 $ 0 $ 57,859
========== =========== ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 15,123 $ 739 $ (57) $ 15,805
Mortgage-backed securities 182 (8) 174
---------- ----------- ------------ ---------
Total securities $ 15,305 $ 739 $ (65) $ 15,979
========== =========== ============ =========
December 31, 2001
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
Equity securities 4,776 4,776
----------- ------------ ------------ ---------
Total securities $ 59,979 $ 1,596 $ (16) $ 61,559
=========== ============ ============ =========
Securities Held-to-Maturity
- ---------------------------
Obligations of state and
political subdivisions $ 13,765 $ 481 $ (25) $ 14,221
Mortgage-backed securities 208 (8) 200
----------- ------------ ------------ ---------
Total securities $ 13,973 $ 481 $ (33) $ 14,421
=========== ============ ============ =========
================================================================================
(Continued)
6
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at June 30,
2002, 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
Cost Value Cost Value
------------ ----------- ----------- -----------
Debt securities:
Due in one year
or less $ 14,893 $ 15,031 $ 1,875 $ 1,908
Due in one to
five years 34,899 36,377 4,666 4,952
Due in five to
ten years 5,335 5,656
Due after ten years 3,247 3,289
Mortgage-backed sec. 1,513 1,565 182 174
------------ ----------- ----------- -----------
Total debt
securities $ 51,305 $ 52,973 $ 15,305 $ 15,979
============ =========== =========== ===========
Gains and losses on the sale of securities are determined using the specific
identification method, however there were no sales of debt and equity securities
during the first six months of 2002 and 2001.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
June 30, December 31,
2002 2001
---------------- ----------------
Real estate loans $ 229,962 $ 226,212
Commercial and industrial loans 191,934 173,154
Consumer loans 122,314 108,437
Other loans 585 857
---------------- ----------------
$ 544,795 $ 508,660
================ ================
At June 30, 2002 and December 31, 2001, loans on nonaccrual status were
approximately $3,832 and $3,297, respectively. Loans past due more than 90 days
and still accruing at June 30, 2002 and December 31, 2001 were $1,448 and
$3,013, respectively.
================================================================================
(Continued)
7
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the six months ended
June 30 is as follows:
2002 2001
---------------- ----------------
Balance - January 1, $ 6,251 $ 5,385
Loans charged off:
Real estate 289 90
Commercial 326 15
Consumer 1,422 970
------------------ -----------------
Total loans charged off 2,037 1,075
Recoveries of loans:
Real estate 106 9
Commercial 133 16
Consumer 339 263
------------------ -----------------
Total recoveries 578 288
------------------ -----------------
Net loan charge-offs (1,459) (787)
Provision charged to operations 1,954 1,073
------------------ -----------------
Balance - June 30, $ 6,746 $ 5,671
================== =================
Information regarding impaired loans is as follows:
June 30, December 31,
2002 2001
-------------- ---------------
Balance of impaired loans $ 1,357 $ 960
============== ===============
Portion of impaired loan balance for
which an allowance for credit
losses is allocated $ 1,357 $ 960
============== ===============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 750 $ 300
============== ===============
Average investment in impaired loans
year-to-date $ 1,340 $ 1,013
============== ===============
Interest on impaired loans was not material for the periods ended June 30,
2002 and June 30, 2001. All impaired loan balances were also included as part of
the Company's nonperforming loans at June 30, 2002.
================================================================================
(Continued)
8
OHIO VALLEY BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
================================================================================
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, through its subsidiaries, grants residential, consumer, and
commercial loans to customers located primarily in the central and southeastern
areas of Ohio as well as the western counties of West Virginia. Approximately
4.21% of total loans were unsecured at June 30, 2002 as compared to 4.81% at
December 31, 2001.
The Corporation is a party to financial instruments with off-balance sheet
risk. These instruments are required in the normal course of business to meet
the financial needs of its customers. The contract or notional amounts of these
instruments are not included in the consolidated financial statements. At June
30, 2002, the contract or notional amounts of these instruments, which primarily
include commitments to extend credit and standby letters of credit and financial
guarantees, totaled approximately $71,276 as compared to $64,312 at December 31,
2001.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at June 30, 2002 and December 31, 2001 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
--------------- ---------------- --------- ----------
2002 $ 78,047 $ 5,944 $ 4,797 $ 88,788
2001 $ 81,564 $ 3,792 $ 5,500 $ 90,856
Pursuant to collateral agreements with the FHLB, advances are secured by
certain qualifying first mortgage loans and by FHLB stock which total $117,070
and $4,886 at June 30, 2002. Fixed rate FHLB advances mature through 2010 and
have interest rates ranging from 3.87% to 6.62%.
Promissory notes, issued primarily by the parent company, have fixed rates
of 2.35% to 7.00% and are due at various dates through a final maturity date of
December 26, 2003.
At June 30, 2002, scheduled principal payments over the next five years are to
be:
FHLB borrowings Promissory notes FRB Notes Totals
--------------- ---------------- --------- ----------
2002 $ 5,723 $ 2,805 $ 4,797 $ 13,325
2003 13,932 3,139 17,071
2004 16,487 16,487
2005 13,115 13,115
2006 14,606 14,606
Thereafter 14,184 14,184
---------------- ---------------- ---------- ----------
$ 78,047 $ 5,944 $ 4,797 $ 88,788
================ ================ ========== ==========
Letters of credit issued on the Bank's behalf by the FHLB to collateralize
certain public unit deposits as required by law totaled $31,750 at June 30,
2002 and $29,000 at December 31, 2001. Various investment securities from the
Bank used to collateralize FRB notes totaled $5,970 at June 30, 2002 and $5,970
at December 31, 2001.
NOTE 7 - TRUST PREFERRED SECURITIES
Obligated mandatorily redeemable capital securities of a subsidiary trust
(Trust Preferred Securities) of $8,500 were issued on March 26, 2002, and have a
current variable rate of 5.47%, that adjusts quarterly, and a mandatory
redemption date of March 26, 2032. However, beginning March 26, 2007, the
Company may, at its option, redeem all or a portion of these trust preferred
securities. Total trust preferred securities were unsecured through June 30,
2002.
================================================================================
9
OHIO VALLEY BANC CORP
(dollars in thousands, except per share data)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
Valley Banc Corp at June 30, 2002, compared to December 31, 2001, and the
consolidated results of operations for the quarterly and year-to-date periods
ending June 30, 2002, compared to the same periods in 2001. The purpose of this
discussion is to provide the reader a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the interim consolidated financial statements and the footnotes included in
this Form 10-Q.
The Registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities which
would have such effect if implemented.
FINANCIAL CONDITION
The consolidated total assets of Ohio Valley Banc Corp. increased $30,222 or
4.8% during the first six months to reach $665,221 at June 30, 2002. The factor
contributing most to this growth in assets was loans which grew $36,135 or 7.1%.
The Company experienced strong loan growth during the second quarter which
contributed to 75% of the year-to-date loan increase. This strong growth in
loans was funded primarily by deposits which increased $25,059 or 5.5% and the
Company's newest trust preferred security issuance which totaled $8,500.
Furthermore, loans were funded by continued maturities of various U.S. treasury
and government agency securities which led to a total investment decrease of
$2,368 or 3.1%. The demand for these types of investment securities are
decreasing due to the decline in yield on reinvestment opportunities.
During the first six months of 2002, loan growth was led by commercial loans
expanding $18,780 or 10.8%. This growth came mostly from loan originations
within the primary market areas of Gallia, Jackson, Pike and Franklin counties
in Ohio which accounted for 67% of the total increase. In addition,
approximately 21% of commercial loan originations came from the growing West
Virginia market areas. For the same period, consumer loans increased $13,877 or
12.8%. Approximately 83% of this increase occurred within indirect loans,
particularly automobiles, where management has been more aggressive in its
pricing of these products. Furthermore, real estate mortgages grew $3,750 or
1.7%, with the largest portion of growth occurring within the West Virginia
market areas of Mason and Cabell county.
During the first six months of 2002, management has continued to emphasize
improving asset quality by driving down nonperforming loans. This emphasis has
prompted a $672 increase in net charge offs, occurring mostly in the first
quarter, which consisted primarily of installment and commercial nonperforming
loans. As a result, the Company's nonperforming loans as a percent of total
loans declined to .97% at June 30, 2002 as compared to 1.24% at year end 2001.
The allowance for loan losses was 1.24% of total loans at June 30, 2002, up from
1.23% at year end 2001. Even though nonperforming loans have declined,
management has maintained the allowance for loan losses based on
Page 10
a general decline in economic conditions and is comfortable that it is adequate
to absorb probable losses in the loan portfolio.
Total deposit growth during the first half of 2002 was primarily in time
deposits which increased $13,614 or 5.1%. This growth was partially driven by
increases in the Company's brokered certificates of deposit which totaled $5,197
through June 30, 2002. To accompany time deposit growth, the Company also had
strong growth in savings and interest-bearing demand deposits which increased
$10,251 or 7.7%. This growth, primarily in the Company's public fund NOW and
Gold Club accounts, is related to the changing interest rate environment which
has influenced customers to maintain their funds in more short-term, highly
liquid products such as the Bank's NOW transaction account. In addition,
non-interest bearing demand deposits have increased $1,194 or 2.1% during the
same period. Management has utilized the total deposit growth to help fund the
growth in loans and to reduce securities sold under agreements to repurchase.
Other borrowed funds are primarily advances from the Federal Home Loan Bank,
which are used to fund loan growth or short-term liquidity needs. Other borrowed
funds are down $2,068 or 2.3% from December 31, 2001, as management has shifted
its focus back to funding loan growth through its traditional retail sources of
funds in certificates of deposit since the cost of these retail sources has
declined significantly. The decrease in other borrowed funds occurred primarily
in overnight borrowings. Additionally, securities sold under agreements to
repurchase are down $3,153 from December 31, 2001. Furthermore, on March 26,
2002, the Company completed the issuance of $8,500 of trust preferred
securities. The proceeds from this issuance have been used to enhance the
Company's risk-based capital adequacy levels as well as support the growth of
additional earning assets, particularly the second quarter growth in loans.
Total shareholders' equity at June 30, 2002 of $47,991 was up by $1,691 as
compared to the balance of $46,300 on December 31, 2001. Contributing most to
this increase was year-to-date income of $2,605 and proceeds from the issuance
of common stock through the dividend reinvestment plan of $331 less cash
dividends paid of $1,142, or $.17 per share for the most recent quarter end. The
cash dividend represents 43.8% of the year-to-date income. Management has had
limited activity within the Company's stock repurchase program during the first
half of 2002.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,353 for the second quarter and $2,605
for the first six months of 2002, up by 17.2% and 15.2% compared to $1,154 and
$2,261 for the same periods in 2001. Comparing year-to-date June 30, 2002 to
June 30, 2001, return on assets increased from .80% to .81% and return on equity
increased from 10.19% to 11.20%. Second quarter earnings per share was $.39 per
share, up 18.2% over last year's $.33 per share. During the first six months of
2002, earnings per share was $.75 per share, up 15.4% from last year's $.65 per
share. The primary contributor to the gain in net income was strong net interest
income growth which exceeded the second quarter and year-to-date of last year by
$911 and $2,115.
The second quarter and year-to-date increases to net interest income of 15.7%
and 19.3% were primarily due to the declines in total interest expense of $891
or 14.7% and $2,009 or 16.2% versus relatively no
Page 11
change in total interest income due to strong loan growth. Earning assets,
driven by loans, increased $31,320 from December 31, 2001 and represented 94.1%
of total assets as compared to 93.6% at year end 2001. The declines in interest
expense were largely impacted by a 134 basis point decline in the Bank's average
funding costs due to the current interest rate environment. As a result, the
Company's net interest margin improved to 4.40% for the first half of 2002 from
4.23% the prior year. For additional discussion on the Company's rate
sensitivity assets and liabilities, please see Item 3, Quantitative and
Qualitative Disclosure About Market Risk on page 14.
The increases in net interest income for the second quarter and year-to-date
periods of 2002 were partially offset by increases to provision expense of $167
and $881 for the same periods as compared to 2001. These increases to provision
expense were in large part from the significant increase in net charge-offs,
particularly in the first quarter, which helped to enhance asset quality and
lower the credit risks associated with the Company's loan portfolio. The
increases in net interest income after provision for the second quarter and
year-to-date periods of 2002 were partially offset by increases in net
noninterest expense of $453 or 12.8% and $733 or 10.8% for the same periods as
compared to 2001. Total noninterest income increased $103 or 7.9% for the second
quarter and $217 or 8.8% for the first six months in 2002 as compared to the
same periods in 2001. Contributing most to this gain was earnings from bank
owned life insurance contracts, service charge income due to growth in
transaction account volume and loan service fees. Total noninterest expense
increased $556 or 11.5% and $950 or 10.2% for the second quarter and
year-to-date periods of 2002 as compared to the same periods in 2001.
Contributing most to this increase was increases to other noninterest expense of
$398 and $512 for the second quarter and year-to-date periods of 2002 as
compared to the same periods in 2001. Impacting other noninterest expense was a
one time net charge off of $464 related to fraudulent check kiting activity in
the second quarter of 2002. Management is actively seeking recoveries related to
this charge off. Additionally, salaries and employee benefits, the Company's
largest noninterest expense item, were up $109 over the second quarter of 2001
and $365 over the first six months of 2001. These increases are related to
annual merit increases, incentive-based compensation and the continuing rise in
the cost of medical insurance. Furthermore, increases in data processing, loan
acquisition costs and general increases in overhead costs were recognized during
the same periods as compared to 2001.
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
June 30, 2002 December 31, 2001 Minimum
------------- ----------------- -----------
Tier 1 risk-based capital 10.6% 9.5% 4.00%
Total risk-based capital ratio 11.8% 10.7% 8.00%
Leverage ratio 9.0% 7.9% 4.00%
Cash dividends paid of $1,142 for the first six months of 2002 represents a 5.9%
increase over the cash dividends paid during the same period in 2001. The
increase in cash dividends paid is largely due to the increase in the dividend
rate paid per share. At June 30, 2002, approximately 73% of the shareholders
Page 12
were enrolled in the dividend reinvestment plan. As part of the Company's stock
repurchase program, management has continued to utilize reinvested dividends and
voluntary cash to purchase shares on the open market to be redistributed through
the dividend reinvestment plan.
LIQUIDITY
Liquidity relates to the Bank's ability to meet the cash demands and credit
needs of its customers and is provided by the ability to readily convert assets
to cash and raise funds in the market place. Total cash and cash equivalents,
interest-bearing deposits with banks, held-to-maturity securities maturing
within one year and securities available-for-sale of $83,995 represented 12.6%
of total assets at June 30, 2002. 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 June 30, 2002, the Bank could borrow an additional
$47 million from the Federal Home Loan Bank. The Company experienced a decrease
of $3,519 in cash and cash equivalents for the six months ended June 30, 2002.
See the condensed consolidated statement of cash flows on page 4 for further
cash flow information.
CONCENTRATION OF CREDIT RISK
The Company maintains a diversified credit portfolio, with real estate loans
comprising the most significant portion. Credit risk is primarily subject to
loans made to businesses and individuals in central and southeastern Ohio as
well as western West Virginia. Management believes this risk to be general in
nature, as there are no material concentrations of loans to any industry or
consumer group. To the extent possible, the Company diversifies its loan
portfolio to limit credit risk by avoiding industry concentrations.
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.
Page 13
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
(dollars in thousands)
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of June 30, 2002 Principal Amount Maturing in:
There- Fair Value
2002 2003 2004 2005 2006 after Total 06/30/02
Rate-Sensitive Assets:
Fixed interest rate loans $ 6,513 $ 9,049 $ 13,953 $ 21,548 $ 25,206 $281,271 $357,540 $362,010
Average interest rate 9.84% 11.13% 10.68% 9.79% 8.73% 7.90% 8.29%
Variable interest rate loans $ 29,732 $ 19,353 $ 3,131 $ 4,663 $ 6,234 $124,142 $187,255 $189,034
Average interest rate 6.51% 5.88% 6.03% 6.38% 6.85% 6.82% 6.65%
Fixed interest rate securities $ 8,416 $ 13,139 $ 16,376 $ 14,905 $ 1,500 $ 17,160 $ 71,496 $ 73,838
Average interest rate 5.60% 4.64% 5.48% 6.00% 5.83% 6.22% 5.63%
Federal funds sold $ 6,325 $ 6,325 $ 6,325
Average interest rate 1.69% 1.69%
Other interest-bearing assets $ 1,492 $ 1,492 $ 1,492
Average interest rate 1.29% 1.29%
Total Rate-Sensitive Assets $ 52,478 $41,541 $ 33,460 $ 41,116 $ 32,940 $422,573 $624,108 $632,699
Average interest rate 6.05% 6.63% 7.70% 8.03% 8.24% 7.51% 7.41%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 7,878 $ 6,807 $ 5,881 $ 5,081 $ 4,390 $ 27,892 $ 57,929 $ 57,929
Savings & Interest-bearing checking $ 22,731 $ 19,043 $ 15,966 $ 13,396 $ 11,248 $ 60,300 $142,684 $142,684
Average interest rate 1.84% 1.85% 1.86% 1.87% 1.88% 1.93% 1.89%
Time deposits $ 93,582 $115,743 $ 43,621 $ 13,978 $ 9,786 $ 3,597 $280,307 $285,632
Average interest rate 4.04% 4.18% 4.32% 5.00% 4.91% 5.85% 4.24%
Fixed interest rate borrowings $ 8,528 $ 17,072 $ 16,487 $ 13,114 $ 14,606 $ 19,184 $ 88,991 $ 91,749
Average interest rate 4.82% 5.19% 5.01% 5.09% 5.22% 6.89% 5.48%
Variable interest rate borrowings $ 39,418 $ 39,418 $ 39,418
Average interest rate 2.53% 2.53%
Total Rate-Sensitive Liabilities $172,137 $158,665 $ 81,955 $ 45,569 $ 40,030 $110,973 $609,329 $617,412
Average interest rate 3.26% 3.83% 3.67% 3.55% 3.63% 2.43% 3.36%
As of December 31, 2001 Principal Amount Maturing in:
There- Fair Value
2002 2003 2004 2005 2006 after Total 12/31/01
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%
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%
(Continued)
14
MATURITY ANALYSIS
================================================================================
Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued)
The Company's one year cumulative gap is liability sensitive, which would
benefit the Company in a declining rate environment. Based on low interest
rates, management has taken steps to guard against rising interest rates.
Management has been offering fixed rate mortgage loans to be sold on the
secondary market. Historically, the Company originated all mortgage loans to be
held in its own portfolio. Furthermore, management has extended the average
maturity of its funding sources by offering longer term certificates of deposit
and borrowing wholesale funds for longer time periods. The result of the above
strategies that were implemented starting last year is less exposure to interest
rate risk.
Part II - Other Information
Item 1 - Legal Proceedings
- --------------------------
None
Item 2 - Changes in Securities
- ------------------------------
None
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Ohio Valley Banc Corp held its Annual Meeting of Shareholders on April 10, 2002,
for the purpose of electing directors. Shareholders received proxy materials
containing the information required by this item. Three directors, Phil A.
Bowman, W. Lowell Call and James L. Dailey were nominated for reelection and
were reelected. The summary of voting of the 2,812,154 shares outstanding were
as follows:
Director Candidate Shares voted: For Against Abstain
- ------------------ --- ------- -------
Phil A. Bowman 2,808,906 3,248
W. Lowell Call 2,806,833 5,321
James L. Dailey 2,807,263 4,891
Directors with terms expiring in 2003 are Merrill L. Evans, Lannes C. Williamson
and Thomas E. Wiseman. Directors with terms expiring in 2004 are Steven B.
Chapman, Robert H. Eastman and Jeffrey E. Smith.
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
B. The Company filed a report on Form 8-K dated April 11, 2002 related to the
issuance of a news release announcing its earnings for the first quarter period
ending March 31, 2002.
OHIO VALLEY BANC CORP
---------------------
Date August 14, 2002 /s/ Jeffrey E. Smith
--------------- ---------------------
Jeffrey E. Smith
President and Chief Executive Officer
Date August 14, 2002 /s/ Larry E. Miller, II
--------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
================================================================================
15
EXHIBIT INDEX
-------------
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED
STATES CODE, SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ohio Valley Banc Corp. (the
"Company") on Form 10-Q for the quarterly period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Jeffrey E. Smith, President and Chief Executive Officer of the Company,
certify, pursuant to Title 18, United States Code Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1924; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date August 14, 2002 /s/ Jeffrey E. Smith
------------------- -----------------------
Jeffrey E. Smith
President and Chief Executive Officer
In connection with the Quarterly Report of Ohio Valley Banc Corp. (the
"Company") on Form 10-Q for the quarterly period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Larry E. Miller, II, Senior Vice President and Treasurer of the Company,
certify, pursuant to Title 18, United States Code Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1924; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date August 14, 2002 /s/ Larry E. Miller, II
------------------- ------------------------
Larry E. Miller, II
Senior Vice President and Treasurer
Page 16