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, 2004
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
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(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. Yes __X__ 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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes __X__ No _____
The aggregate market value of the common shares of the Registrant held by
non-affiliates computed by reference to the average bid and asked price of the
common shares as of June 30, 2004 was $108,077,532.
The number of common shares of the Registrant outstanding as of February 28,
2004 was 3,430,859 common shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 2004 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, 7, 7A and 8.
(2) Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 13, 2005 are incorporated by reference into Part III,Items 10,
11, 12, 13 and 14.
Exhibit Index begins on page 24.
PART I
ITEM 1 - BUSINESS
Holding Company
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Ohio Valley Banc Corp ("Ohio Valley") is a financial holding company that
was incorporated under the laws of the State of Ohio on January 8, 1992. Ohio
Valley is registered under the Bank Holding Company Act of 1956, as amended
("BHC Act"). The principal executive offices of Ohio Valley are located at 420
Third Avenue, Gallipolis, Ohio 45631. Ohio Valley's common shares are listed on
The NASDAQ National Market under the symbol "OVBC". Ohio Valley's business is
incident to its 100% ownership of the outstanding equity of The Ohio Valley Bank
Company (the "Bank"), Loan Central, Inc. ("Loan Central") and Ohio Valley
Financial Services Agency, LLC ("Ohio Valley Financial Services"). Ohio Valley
and its subsidiaries are collectively referred to as the "Company."
Bank Subsidiary
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A substantial portion of Ohio Valley's revenue is derived from cash
dividends paid by the Bank. 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 is primarily engaged in commercial and retail banking. The Bank is
a full-service financial institution offering a blend of commercial, consumer
and agricultural banking services within central and southeastern Ohio as well
as western West Virginia. 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. The Bank's deposits are
insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC"). 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.
The Bank presently has sixteen offices, all of which offer automatic teller
machines ("ATM's"). Seven of these offices also offer drive-up services. The
Bank accounted for substantially all of Ohio Valley's consolidated assets at
December 31, 2004.
Non-bank Subsidiary
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Loan Central was incorporated on February 1, 1996 under the laws of the
State of Ohio governing finance companies. Loan Central is engaged in consumer
finance, offering smaller balance personal and mortgage loans to individuals
with higher credit risk history. Loan Central presently has five offices within
southeastern Ohio.
2
Financial Services Subsidiaries
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Ohio Valley Financial Services was formed on January 10, 2000 and is
engaged in selling life insurance. [To who? More about business?] Ohio Valley
Financial Services was approved under the guidelines of the State of Ohio
Department of Insurance.
Ohio Valley also holds a non-majority equity interest in three insurance
businesses. The first, BSG Title Services, LLC, was formed on February 28, 2001.
The second, OVB Title Services, LLC, was formed on October 1, 2004. Both
insurance agencies are engaged primarily in title services related to real
estate, commercial and consumer loan customers. The third business is
ProAlliance Corp., an insurance company formed on March 18,2004. ProAlliance
Corp., previouly a subsidiary of ProFinance Corp., was the result of a dividend
to the owners of ProCentury Corp., formerly known as ProFinance Corp., prior to
an initial public offering of ProCentury Corp. on April 26, 2004.ProAlliance
Corp. is engaged primarily in specialty property and casualty insurance
coverage. All investments were approved under the guidelines of the State of
Ohio Department of Insurance.
Variable Interest Entities
--------------------------
Ohio Valley owns two special purpose entities - Ohio Valley Statutory
Trusts I and II. Prior to 2003, Ohio Valley classified the trusts as wholly
owned subsidiaries and consolidated Ohio Valley's ownership of the trust
preferred securities in Ohio Valley's financial statements as liabilities. Under
accounting guidance outlined by Financial Accounting Standards Board
Interpretation No. 46, Consolidation of Variable Interest Entities, adopted in
2003, the trusts are no longer consolidated. As a result, Ohio Valley does not
report the trust preferred securities issued by the trust as liabilities, and
instead reports as liabilities the subordinated debentures issued by Ohio Valley
and held by the trusts. Further detail on this accounting guidance and the
deconsolidation of Ohio Valley Statutory Trusts I and II is located in Ohio
Valley's 2004 Annual Report to Shareholders under "Note A - Summary of
Significant Accounting Policies" and "Note I - Subordinated Debentures and Trust
Preferred Securities." All such information is incorporated herein by reference.
Reference is hereby made to Item 1(E), "Statistical Disclosure" and Item 8
of this Form 10-K for financial information pertaining to Ohio Valley's business
through its subsidiaries as required by Item 101 of Regulation S-K.
Competition
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The financial services industry 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 generating a growing market presence. Loan Central's market
presence further strengthens Ohio Valley's ability to compete in the Gallia,
Jackson and Pike Counties by serving a consumer base which may not meet the
Bank's credit standards. Loan Central also operates in the Ohio counties of
Lawrence and Scioto, which are outside the Bank's primary market area.
3
Additionally, Ohio Valley Financial Services sells life insurance which
further strengthens the blend of services available to Ohio Valley's consumer
base. The principal factors of competition for Ohio Valley's banking business
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 Ohio Valley 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 individuals, businesses and
corporations which are located primarily in southeastern Ohio and western West
Virginia. 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 in its exposure to higher
average dollars per loan as compared with other types of lending (i.e.,
single-family residential mortgage lending, installment lending and credit card
loans). The payment experience on commercial loans is typically dependent on
adequate cash flows to service both interest and principal due. Thus, commercial
loans may be more sensitive to adverse conditions in the economy generally or
adverse conditions in a specific industry.
The Bank and Loan Central make installment credit available to customers in
their primary market area of southeastern Ohio and portions of western West
Virginia. Credit approval for consumer loans requires demonstration of
sufficient 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 Bank and Loan Central 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 Bank and Loan Central 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 Bank and Loan Central review their respective
consumer loan portfolios monthly to charge off loans which do not meet that
subsidiary's standards. Credit card accounts are administered in accordance with
the same standards as those 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 are 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 the amount of a residential real estate loan 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 third quarter of 2002, the Bank began selling
a large portion of its new fixed-rate real estate loan originations to the
Federal Home Loan Mortgage Corporation ("Freddie Mac") to enhance customer
service and loan pricing. Secondary market sales of these real estate loans,
4
which have fixed rates with fifteen to thirty year terms, assisted in minimizing
the Bank's exposure to interest rate risk as rates began to rise in 2004. 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.
Consolidated revenues from loans accounted for 77.35%, 81.07% and 82.29% of
total consolidated revenues in 2004, 2003 and 2002, respectively. Revenues from
interest and dividends on securities accounted for 7.13%, 7.23% and 7.16% of
total consolidated revenues in 2004, 2003 and 2002, respectively.
To continue the expansion of the Bank's market presence and further enhance
customer service, the Bank began a phase of SuperBank branch openings in
December 1996. From 1996 to 2001, the Bank opened eight SuperBank facilities
within supermarkets and Wal-Mart stores. These new branches service the market
areas of Gallia, Jackson, Meigs and Lawrence counties of Ohio as well as the
growing Kanawha and Cabell counties of West Virginia.
Furthermore, with the advent of the Gramm-Leach-Bliley Act, Ohio Valley has
expanded its business beyond banking services. In October 2000, Ohio Valley
participated in the purchase of ProCentury Corp., a property and casualty
insurance underwriter and reinsurance company. Ohio Valley's interest in
ProCentury Corp. was sold in 2004 through an initial public offering that
yielded an after-tax gain of $1,625. ProAlliance Corp. was formed as a result of
a dividend paid to the owners of ProCentury Corp. prior to this initial public
offering in 2004.Furthermore, Ohio Valley formed Ohio Valley Financial Services
and two title insurance agencie, BSG Title Services, LLC and OVB Title Services,
LLC.
The financial services industry is likely to become more competitive as
further technological advances enable more companies to provide financial
services on a more efficient and convenient basis.
Supervision and Regulation
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The following is a summary of certain statutes and regulations affecting
Ohio Valley as well as the Bank and Loan Central. The summary is qualified in
its entirety by reference to such statutes and regulations.
Regulation of Bank Holding Company
Ohio Valley is subject to the requirements of 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"). The
Federal Reserve Board also has extensive enforcement authority over bank holding
companies, including, among other things, the ability to:
o assess civil money penalties;
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o issue cease and desist or removal orders; and
o require that a bank holding company divest subsidiaries (including its
banking subsidiaries).
In general, the Federal Reserve Board may initiate enforcement action for
violations of laws and regulations and unsafe or unsound practices.
Under Federal Reserve Board policy, a bank holding company is expected to
serve as a source of financial strength to each subsidiary bank and to commit
resources to support those subsidiary banks. Under this policy, the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The BHC Act requires the prior approval of the Federal Reserve Board in any
case where a bank holding company proposes to:
o acquire direct or indirect ownership or control of more than 5% of the
voting shares of any bank that is not already majority-owned by it;
o acquire all or substantially all of the assets of another bank or bank
holding company; or
o merge or consolidate with any other bank holding company.
Transactions with Affiliates, Directors, Executive Officers and Shareholders
Section 23A and 23B of the Federal Reserve Act and Regulation W restrict
transactions by banks and their subsidiaries with their affiliates. An affiliate
of a bank is any company or entity which controls, is controlled by or is under
common control with the bank.
Generally, Sections 23A and 23B and Regulation W: (1) limit the extent to
which a bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of that bank's capital stock and surplus
(i.e., tangible capital), (2) limit the extent to which a bank or its
subsidiaries may engage in "covered transactions" with all affiliates to 20% of
that bank's capital stock and surplus, and (3) require that all such
transactions be on terms substantially the same, or at least as favorable to the
bank subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions.
A bank's authority to extend credit to executive officers, directors and
greater than 10% shareholders, as well as entities such persons control, is
subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated thereunder by the Federal Reserve Board. Among other things, these
loans must be made on terms substantially the same as those offered to
unaffiliated individuals or be made as part of a benefit or compensation program
and on terms widely available to employees, and must not involve a greater than
normal risk of repayment. In addition, the amount of loans a bank may make to
these persons is based, in part, on the bank's capital position, and specified
approval procedures must be followed in making loans which exceed specified
amounts.
6
Regulation of State Chartered Banks
As an Ohio state-chartered bank that is not a member of the Federal Reserve
Bank, the Bank is supervised and regulated by the Ohio Division of Financial
Institutions and the FDIC.
The Bank's deposits are insured up to applicable limits by the FDIC and the
Bank is subject to the applicable provisions of the Federal Deposit Insurance
Act and the regulations of the FDIC.
Various requirements and restrictions under the laws of the United States
and the State of Ohio and the State of West Virginia affect the operations of
the Bank, including requirements to maintain reserves against deposits,
restrictions on the nature and amount of loans that 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.
Holding Company Activities
In November of 1999, the Gramm-Leach-Bliley Act ("GLB Act") was enacted,
amending the BHC Act and modernizing the laws governing the financial services
industry. The GLB Act authorized the creation of financial holding companies, a
new type of bank holding company with powers exceeding those of traditional bank
holding companies. Ohio Valley 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 Securities and Exchange Commission (the "SEC") and state
insurance regulators. The GLB 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.
Loan Central is supervised and regulated by the State of Ohio Department of
Financial Institutions, Division of Consumer Finance. Ohio Valley's insurance
company investments, ProAlliance Corp., Ohio Valley Financial Services, BSG
Title Services, LLC and OVB Title Services, LLC are all supervised and regulated
by the State of Ohio Department of Insurance. The insurance laws and regulations
applicable to insurance agencies require education and licensing of individual
agents and agencies, require reports and impose business conduct rules.
7
The GLB Act 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.
Capital Requirements
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
shareholders' equity (including retained earnings but excluding treasury stock),
noncumulative perpetual preferred 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 of certain
amounts of mandatory convertible debt securities, subordinated debt, preferred
stock not qualifying as Tier 1 Capital 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. Ohio Valley and the Bank currently satisfy all
applicable 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.
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.
8
Limits on Dividends
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 that may be declared by its subsidiary banks and other subsidiaries.
However, the Federal Reserve Board expects Ohio Valley 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 Ohio
Valley. The Bank may not pay dividends to Ohio Valley 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 Ohio Valley's ability to pay dividends on its
outstanding common shares.
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.
The assessment currently ranges from 1.44 to 28.44 cents per $100 of
domestic deposits. The Bank is currently paying an assessment rate of 1.44 cents
per $100 of domestic deposits.
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.
Sarbanes-Oxley Act of 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The stated goals of the Sarbanes-Oxley Act are
to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
9
protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws. The proposed changes are
intended to allow shareholders to monitor the performance of companies and
directors more easily and efficiently.
The Sarbanes-Oxley Act addresses, among other matters: audit committees;
corporate responsibility for financial reports; a requirement that chief
executive and chief financial officers forfeit certain bonuses and profits if
their companies issue an accounting restatement as a result of misconduct; a
prohibition on insider trading during pension fund black-out periods; disclosure
of off-balance sheet transactions; conditions for the use of financial
information not in accordance with generally accepted accouting principles; a
prohibition on personal loans to directors and executive officers (excluding
loans by insured depository institutions that are subject to the insider lending
restrictions of the Federal Reserve Act); expedited filing requirements for
stock transaction reports by officers and directors; the formation of the Public
Accounting Oversight Board; auditor independence; and various increased criminal
penalties for violations of securities laws.
As mandated by the Sarbanes-Oxley Act, the SEC has adopted rules and
regulations governing, among other issues, corporate governance, auditing and
accounting, executive compensation and enhanced and timely disclosure of
corporate information. The NASDAQ Stock Market has also adopted corporate
governance rules. Ohio Valley's Board of Directors has taken a series of actions
to strengthen and improve Ohio Valley's corporate governance practices in light
of the rules of the SEC and The NASDAQ Stock Market.
Employees
---------
As of December 31, 2004, Ohio Valley and its subsidiaries employed 270
full-time equivalent employees. Management considers its relationship with its
employees to be good.
Other Information
-----------------
Management anticipates no material effect upon the capital expenditures,
earnings and competitive position of the Company by reason of any laws
regulating or protecting the environment. Ohio Valley believes that the nature
of the operations of its subsidiaries has little, if any, environmental impact.
Ohio Valley, therefore, anticipates no material capital expenditures for
environmental control facilities in its current fiscal year or for the
foreseeable future.
The Bank and Loan Central 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 Ohio Valley 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.
10
Available Information
---------------------
Interested readers can access Ohio Valley's annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, through Ohio Valley's Internet
website at www.ovbc.com (this uniform resource locator, or URL, is an inactive
textual reference only and is not intended to incorporate the information
contained on Ohio Valley's website into this Annual Report on Form 10-K). These
reports can be accessed free of charge from Ohio Valley's website as soon as
reasonably practicable after Ohio Valley electronically files such materials
with, or furnishes them to, the SEC.
Financial Information About Foreign and Domestic Operations and Export Sales
----------------------------------------------------------------------------
Ohio Valley'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
Ohio Valley as required under the SEC's Industry Guide 3, "Statistical
Disclosure by Bank Holding Companies", or a specific reference as to the
location of the required disclosures in Ohio Valley's 2004 Annual Report to
Shareholders which are hereby incorporated herein by reference.
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, 2004, 2003 and 2002 is
incorporated herein by reference to the information appearing under the caption
"Table I - Consolidated Average Balance Sheet & Analysis of Net Interest
Income", within "Management's Discussion and Analysis of Operations" located on
page 30 of Ohio Valley's 2004 Annual Report to Shareholders.
C. Tables setting forth the effect of volume and rate changes on interest income
and expense for the years ended December 31, 2004, 2003 and 2002 is incorporated
herein by reference to the information appearing under the caption "Table II -
Rate Volume Analysis of Changes in Interest Income & Expense", within
"Management's Discussion and Analysis of Operations" located on page 32 of Ohio
Valley's 2004 Annual Report to Shareholders. 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.
Changes not due solely to either a change in volume or a change in rate have
been allocated proportionally to both changes due to volume and rate.
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II. INVESTMENT PORTFOLIO
A. Types of Securities - Total securities on the balance sheet are comprised of
the following classifications at December 31:
(dollars in thousands) 2004 2003 2002
---- ---- ----
Securities Available-for-Sale
U.S. Government agency securities.. $ 20,087 $ 37,785 $ 66,838
Mortgage-backed securities......... 48,647 33,364 3,425
FHLB stock......................... 5,421 5,203 5,001
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Total securities available-for-sale $ 74,155 $ 76,352 $ 75,264
========= ========= =========
Securities Held-to-Maturity
Obligations of states of the U.S.
and political subdivisions....... $ 11,910 $ 12,724 $ 13,821
Mortgage-backed securities......... 84 111 169
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Total securities held-to-maturity $ 11,994 $ 12,835 $ 13,990
========= ========= =========
B. Information required by this item is incorporated herein by reference to the
information appearing under the caption "Table III - Securities", within
"Management's Discussion and Analysis of Operations" located on page 33 of Ohio
Valley's 2004 Annual Report to Shareholders.
C. Excluding obligations of the U.S. Government and its agencies, no
concentration of securities exists of any issuer that is greater than 10% of
shareholders' equity of Ohio Valley.
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) 2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Real estate loans $227,234 $217,636 $224,212 $226,212 $209,724
Commercial loans 226,058 220,724 205,508 173,154 139,826
Consumer loans 146,965 134,720 128,662 108,437 98,013
All other loans 317 624 1,179 857 740
-------- -------- -------- -------- --------
$600,574 $573,704 $559,561 $508,660 $448,303
======== ======== ======== ======== ========
B. Maturities and Sensitivities of Loans to Changes in Interest Rates -
Information required by this item is incorporated herein by reference to the
information appearing under the caption "Table VII - Maturity and Repricing Data
of Loans", within "Management's Discussion and Analysis of Operations" located
on page 35 of Ohio Valley's 2004 Annual Report to Shareholders.
C. 1. Risk Elements - Gross interest income that would have been recorded on
loans that were troubled debt restructurings, nonaccrual or past due 90 days is
estimated to be $121,000 for the fiscal year ending December 31, 2004.
Additional information required by this item is incorporated herein by reference
to the information appearing under the caption "Table VI - Summary of
Nonperforming and Past Due Loans", within "Management's Discussion and Analysis
of Operations" located on page 35 of Ohio Valley's 2004 Annual Report to
Shareholders.
12
2. Potential Problem Loans - At December 31, 2004, there are approximately
$1,986,000 of loans, which are not included in "Table VI - Summary of
Nonperforming and Past Due Loans" within "Management's Discussion and Analysis
of Operations" located on page 35 of Ohio Valley's 2004 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 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,
2004, 2003 or 2002.
4. Loan Concentrations - As of December 31, 2004, there were no concentrations
of loans greater than 10% of total loans which are not otherwisedisclosed as a
category of loans pursuant to Item III.A. above. Also refer to the Consolidated
Financial Statements regarding concentrations of credit risk found within Note A
of the Notes to the Consolidated Financial Statements of Ohio Valley's 2004
Annual Report to Shareholders incorporated herein by reference.
5. No 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, 2004, there were no other
interest-bearing assets that would be required to be disclosed under Item III.C.
if such assets were loans.
13
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following schedule presents an analysis of the allowance for loan losses
for the fiscal years ended December 31:
(dollars in thousands) 2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Balance, beginning of year $7,593 $7,069 $6,251 $5,385 $5,055
Loans charged-off:
Real estate 823 1,110 636 659 92
Commercial 1,661 2,267 2,272 620 61
Consumer 2,267 2,661 2,656 1,903 1,642
-------- -------- -------- -------- -------
Total loans charged-off 4,751 6,038 5,564 3,182 1,795
Recoveries of loans:
Real estate 583 279 119 69 4
Commercial 556 1,057 158 17 ---
Consumer 843 887 635 459 231
-------- ------- -------- -------- -------
Total recoveries of loans 1,982 2,223 912 545 235
Net loan charge-offs (2,769) (3,815) (4,652) (2,637) (1,560)
Provision charged to operations 2,353 4,339 5,470 3,503 1,890
-------- ------- -------- -------- -------
Balance, end of year $7,177 $7,593 $7,069 $6,251 $5,385
======== ======= ======== ======== =======
Ratio of Net Charge-offs to
Average Loans outstanding .47% .68% .86% .56% .36%
======== ======= ======== ======== =======
Ratio of Allowance for Loan Losses
to Non-Performing Assets 142.46% 140.66% 83.16% 94.73% 80.70%
======== ======= ======== ======== =======
Discussion on factors which influenced management in determining the amount of
additions charged to provision expense is incorporated herein by reference to
the information appearing under the caption "Loans" within "Management's
Discussion and Analysis of Operations" located on page 33 of Ohio Valley's 2004
Annual Report to Shareholders.
B. Allocation of the Allowance for Loan Losses - Information required by this
item is incorporated herein by reference to the information appearing under the
caption "Table V - Allocation of the Allowance for Loan Losses", within
"Management's Discussion and Analysis of Operations" located on page 35 of Ohio
Valley's 2004 Annual Report to Shareholders.
V. DEPOSITS
A. Deposit Summary - Information required by this item is incorporated herein by
reference to the information appearing under the caption "Table I - Consolidated
Average Balance Sheet & Analysis of Net Interest Income", within "Management's
Discussion and Analysis of Operations" located on page 30 of Ohio Valley's 2004
Annual Report to Shareholders.
14
C.&E. Foreign Deposits - There were no foreign deposits outstanding at December
31, 2004, 2003, or 2002.
D. Schedule of Maturities - The following table provides a summary of total time
deposits by remaining maturities for the fiscal year ended December 31, 2004:
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 ................. $ 14,929 $ 8,074 $ 31,677 $ 46,005
Other time deposits of
$100,000 or greater ................. 1,249 765 2,075 2,975
-------- ------- -------- --------
Total time deposits of
$100,000 or greater ................. $ 16,178 $ 8,839 $ 33,752 $ 48,980
======== ======= ======== ========
VI. RETURN ON EQUITY AND ASSETS
Information required by this section is incorporated herein by reference to the
information appearing under the caption "Table X - Key Ratios" within
"Management's Discussion and Analysis of Operations" located on page 40 of Ohio
Valley's 2004 Annual Report to Shareholders.
VII. SHORT-TERM BORROWINGS
The following schedule is a summary of securities sold under agreements to
repurchase at December 31:
(dollars in thousands) 2004 2003 2002
---- ---- ----
Balance outstanding at period-end .......... $ 39,753 $ 24,018 $ 33,052
-------- -------- --------
Weighted average interest rate at period-end 1.77% .80% 1.08%
-------- -------- --------
Average amount outstanding during year ..... $ 24,743 $ 23,396 $ 23,090
-------- -------- --------
Approximate weighted average interest rate
during the year ......................... 1.12% .87% 1.56%
-------- -------- --------
Maximum amount outstanding as of any
month-end ............................... $ 39,753 $ 35,213 $ 33,052
-------- -------- --------
Forward-Looking Information
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act),
including, without limitation, the statements specifically identified as
forward-looking statements within this document. In addition, certain statements
in future filings by Ohio Valley with the SEC, in press releases, and in oral
and written statements made by or with the approval of Ohio Valley which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include: (i)
projections of revenues, income or loss, earnings or loss per share, the payment
or non-payment of dividends, capital structure and other financial items; (ii)
statements of plans and objectives of Ohio Valley or its management or its board
15
of directors, including those relating to products or services; (iii) statements
of future economic performance; and (iv) statements of assumptions underlying
such statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted" and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying those statements.
Forward-looking statements involve risks and uncertainties. Actual results may
differ materially from those predicted by the forward-looking statements because
of various factors and possible events, including: (i) changes in political,
economic or other factors such as inflation rates, recessionary or expansive
trends, and taxes; (ii) competitive pressures; (iii) fluctuations in interest
rates; (iv) the level of defaults and prepayment on loans made by the Company;
(v) unanticipated litigation, claims, or assessments; (vi) fluctuations in the
cost of obtaining funds to make loans; and (vii) regulatory changes.
There is also the risk that we incorrectly analyze these risks and forces, or
that the strategies we develop to address them are unsuccessful.
Forward-looking statements speak only as of the date on which they are made and
Ohio Valley undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement is made to
reflect unanticipated events. All subsequent written and oral forward-looking
statements attributable to Ohio Valley or any person acting on our behalf are
qualified by the cautionary statements in this selection.
ITEM 2 - PROPERTIES
Ohio Valley does not own or lease any real or personal property.
The principal executive offices of Ohio Valley and the Bank are located at
420 Third Avenue, Gallipolis, Ohio. The Bank owns six financial service centers
located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.)
and Columbus (Franklin Co.), all in Ohio. The Bank leases nine additional
financial service centers located in Gallipolis (Gallia Co.), Jackson (Jackson
Co.), Pomeroy (Meigs Co.), and South Point (Lawrence Co.) in Ohio and Point
Pleasant (Mason Co.), Huntington (Cabell Co.), Milton (Cabell Co.) and Cross
Lanes (Kanawha Co.) in West Virginia. The Bank also owns and operates twenty
five ATMs, including ten off-site ATMs. Furthermore, the Bank owns a facility
and leases a facility in Gallipolis (Gallia Co.), Ohio which are used for
additional office space. The Bank also owns two facilities in Gallipolis (Gallia
Co.), Ohio and Point Pleasant (Mason Co.), West Virginia which are leased to
third parties.
Loan Central conducts its consumer finance operations through five offices
located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.),
South Point (Lawrence Co.) and Wheelersburg (Scioto Co.), all in Ohio. All of
these facilities are leased by Loan Central, except for the Wheelersburg (Scioto
Co.) facility. Loan Central leases a portion of its Wheelersburg (Scioto Co.)
facility to a third party. Ohio Valley Financial Services also conducts business
within Loan Central's Jackson (Jackson Co.) facility.
Management considers all of these properties to be satisfactory for the
Company's current operations. The Bank, Loan Central and Ohio Valley Financial
Services' leased facilities are all subject to commercially standard leasing
arrangements.
Information concerning the value of the Company's owned and leased real
property and a summary of future lease payments is contained in "Note E -
Premises and Equipment" to the Company's consoldiated financial statements for
the fiscal year ended December 31, 2004, located on page 17 of Ohio Valley's
2004 Annual Report to Shareholders.
16
ITEM 3 - LEGAL PROCEEDINGS
There are no material pending legal proceedings against Ohio Valley or any of
its subsidiaries, other than ordinary, routine 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 2004 to a vote of
security holders, by solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G of Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, the following table lists the names and ages of the
executive officers of Ohio Valley as of March 16, 2005, the positions presently
held by those individuals with Ohio Valley and its principal subsidiaries and
their individual business experience during the past five years.
Current Position and
Name and Age Business Experience During Past 5 Years
- ------------------ ---------------------------------------
Jeffrey E. Smith, 55 President and Chief Executive Officer of Ohio Valley
and the Bank
Sue Ann Bostic, 63 Vice President of Ohio Valley beginning 1996; Senior
Vice President, Administrative Group of the Bank
since 1996.
Cherie A. Barr, 38 Vice President of Ohio Valley beginning 1998;
President of Loan Central since 2000, President and
Secretary of Loan Central from 1999 to 2000.
Katrinka V. Hart, 46 Senior Vice President since 2003 and Vice President
from 1995 to 2003 of Ohio Valley; Executive Vice
President and Risk Management Officer since 2003,
Senior Vice President, Retail Bank Group from 1995 to
2003 of the Bank.
Mario P. Liberatore, 59 Vice President of Ohio Valley beginning 1997, Senior
Vice President, West Virginia Bank Group of the Bank
beginning 1997.
E. Richard Mahan, 59 Senior Vice President and Secretary of Ohio Valley
beginning 2000, Executive Vice President and
Secretary of the Bank beginning 2000; Senior Vice
President of Ohio Valley from 1999 to 2000, Executive
Vice President of the Bank from 1999 to 2000.
Larry E. Miller, II, 40 Senior Vice President and Treasurer of Ohio Valley
beginning 2000, Executive Vice President and
Treasurer of the Bank beginning 2000; Senior Vice
President of Ohio Valley from 1999 to 2000, Executive
Vice President of the Bank from 1999 to 2000.
David L. Shaffer, 46 Vice President of Ohio Valley beginning 2000, Senior
Vice President, Commercial Bank Group of the Bank
beginning 2000; Vice President, Commercial Lending of
the Bank from 1999 to 2000.
17
Current Position and
Name and Age Business Experience During Past 5 Years
- ------------------ ---------------------------------------
Sandra L. Edwards, 57 Vice President of Ohio Valley 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.
Scott W. Shockey, 35 Vice President and Chief Financial Officer since
December 2004 and Assistant Treasurer from 2001 to
December 2003 of Ohio Valley; Senior Vice President
since December 2004, Chief Financial Officer since
2001, Vice President from 2001 to December 2003, and
Assistant Vice President and Comptroller from 1999 to
2001 of the Bank.
Jennifer L. Osborne, 52 Vice President of Ohio Valley since 2004; Senior Vice
President, Retail Lending Group since 2004 and Vice
President, Retail Lending Group from 1999 to 2003 of
the Bank.
Tom R. Shepherd, 38 Vice President of Ohio Valley since 2004; Senior Vice
President, Retail Deposit Group since 2004, Vice
President, Director of Marketing, Product Management
and Retail Development from 2001 to 2003, and Vice
President, Marketing from 1998 to 2000 of the Bank.
Cindy H. Johnston, 44 Assistant Secretary of Ohio Valley since 1995;
Assistant Vice President since 2004 and Assistant
Secretary since 1995 of the Bank.
Paula W. Salisbury, 46 Assistant Secretary of Ohio Valley since 1995;
Assistant Vice President since 2004 and Assistant
Secretary since 1995 of the Bank.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required under this Item 5 by Items 201(a) through (c) of
SEC Regulation S-K is incorporated herein by reference to the information
presented under the captions "Summary of Common Stock Data" located on page 28
of Ohio Valley's 2004 Annual Report to Shareholders and "Note P -- Regulatory
Matters" to the Company's Consolidated Financial Statements for the fiscal year
ended December 31, 2004 located on page 23 of Ohio Valley's 2004 Annual Report
to Shareholders. The closing price of Ohio Valley's common shares on the NASDAQ
National Market on March 15, 2005 was $33.21.
18
In response to the information required under this Item 5 by Item 701 of
SEC Regulation S-K, Ohio Valley did not sell any of its securities without
registration during its 2004 fiscal year.
Pursuant to Item 703 of SEC Regulation S-K, the following table provides
information on Ohio Valley's purchases of its common shares during the three
fiscal months ended December 31, 2004:
Maximum Number
Total Number of Shares of Shares That May
Total Number of Average Purchased as Part of Yet Be Purchased
Common Shares Price Paid per Publicly Announced Under Publicly Announced
Period Purchased Common Share Plans or Programs Plans or Programs
-------------------------- ------------- -------------- ---------------------- --------------------------
October 1 through
October 31, 2004 ............. - - - - - - - - - 107,091
November 1 through
November 30, 2004 ............ - - - - - - - - - 107,091
December 1 through
December 31, 2004 ............ 31,260 $32.50 31,260 75,831
------------- ------------- ------------- -------------
TOTAL 31,260 $32.50 31,260 75,831
============= ============= ============= =============
ITEM 6 - SELECTED FINANCIAL DATA
The information required under this Item 6 by Item 301 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
caption "Selected Financial Data" located on page 5 of Ohio Valley's 2004 Annual
Report to Shareholders.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required under this Item 7 by Item 303 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
caption "Management's Discussion and Analysis of Operations" located on pages
29-40 of Ohio Valley's 2004 Annual Report to Shareholders.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this Item 7A by Item 305 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
captions "Interest Rate Sensitivity and Liquidity" and "Interest Rate
Sensitivity -- Table VIII" and found within "Management's Discussion and
Analysis of Operations" located on pages 37 and 38, respectively, of Ohio
Valley's 2004 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Ohio Valley's consolidated financial statements and related notes are
listed below and incorporated herein by reference to pages 6-26 of Ohio Valley's
2004 Annual Report to Shareholders. The supplementary "Consolidated Quarterly
19
Financial Information (unaudited)" and the "Report of Independent Registered
Public Accounting Firm on Financial Statements" located on pages 26 and 27,
respectively, of Ohio Valley's 2004 Annual Report to Shareholders are also
incorporated herein by reference.
Consolidated Statements of Condition as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended December 31, 2004, 2003
and 2002
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended December 31, 2004,
2003 and 2002
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Financial Statements
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Ohio Valley has not changed accountants during the fiscal years ended
December 31, 2004 and December 31, 2003. Furthermore, during the fiscal years
ended December 31, 2004 and December 31, 2003, there were no disagreements
between Crowe Chizek and Company LLC ("Crowe Chizek") on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to Crowe Chizek's
satisfaction, would have caused Crowe Chizek to make reference to the subject
matter of the disagreement in connection with its reports on Ohio Valley's
consolidated financial statements for such periods.
ITEM 9A - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
- ----------------------------------
With the participation of the President and Chief Executive Officer (the
principal executive officer) and the Vice Presient and Chief Financial Officer
(the principal financial officer) of Ohio Valley, Ohio Valley's management has
evaluated the effectiveness of Ohio Valley's disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this Annual
Report on Form 10-K.
20
Based on that evaluation, Ohio Valley's President and Chief Executive
Officer and Vice Presient and Chief Financial Officer have concluded that:
o information required to be disclosed by Ohio Valley in this
Annual Report on Form 10-K would be accumulated and
communicated to Ohio Valley's management, including its
principal executive officer and principal financial officer,
as appropriate to allow timely decisions regarding required
disclosure;
o information required to be disclosed by Ohio Valley in this
Annual Report on Form 10-K would be recorded, processed,
summarized and reported within the time periods specified in
the SEC's rules and forms; and
o Ohio Valley's disclosure controls and procedures are effective
as of the end of the period covered by this Annual Report on
Form 10-K to ensure that material information relating to Ohio
Valley and its consolidated subsidiaries is made known to
them, particularly during the period for which the periodic
reports of Ohio Valley, including this Annual Report on Form
10-K, are being prepared.
Internal Control Over Financial Reporting
- -----------------------------------------
Pursuant to the SEC's Exemptive Order in Release No. 34-50754 (November 30,
2004), management's annual report on internal control over financial reporting
required by Item 308(a) of SEC Regulation S-K and the related attestation report
of the registered public accounting firm required by Item 308(b) of SEC
Regulation S-K are not included herein. Ohio Valley will file this information
with the SEC by an amendment to this Form 10-K no later than May 2, 2005.
There were no changes in Ohio Valley's internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during Ohio Valley's fiscal quarter ended December 31, 2004, that have
materially affected, or are reasonably likely to materially affect, Ohio
Valley's internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
The following information is disclosed pursuant to Item 5.02 - Departure of
Directors or Principal Officers; Election of Directors; Appointment of Principal
Officers of Form 8-K:
Election of Director
- --------------------
The Board of Directors of Ohio Valley elected Harold A. Howe as a director
of Ohio Valley on January 18, 2005. Mr. Howe, age 54, has served as the
President of Ohio Valley Financial Services since 2000 and as a member of the
Board of Directors of the Bank since 1998. Mr. Howe is self-employed in the real
estate investment and rental business.
Mr. Howe was elected to finish the unexpired term of James L. Dailey who
retired from the Board of Directors of Ohio Valley effective January 18, 2005.
Mr. Dailey continues to serve as the Chairman of the Board of Directors of the
Bank. The Board of Directors of Ohio Valley has nominated Mr. Howe to stand for
re-election to the Board of Directors of Ohio Valley at Ohio Valley's Annual
Meeting of Shareholders on April 13, 2005.
21
On March 2, 2005, Ohio Valley issued a press release announcing Mr. Howe's
election to its Board of Directors. A copy of the press release is included as
Exhibit 99 to this Form 10-K and incorporated herein by reference.
Appointment of Principal Officer
- --------------------------------
On December 14, 2004, Scott W. Shockey was elected as Vice President and
Chief Financial Officer of Ohio Valley and as Senior Vice President of the Bank.
Mr. Shockey, age 35, has also served as Chief Financial Officer of the Bank
since 2001. Mr. Shockey served as Assistant Treasurer of Ohio Valley from 2001
to December 14, 2004; as Vice President of the Bank from 2001 to December 14,
2004; and as Assistant Vice President and Comptroller of the Bank from 1999 to
2001.
The Bank has had and expects to have in the future banking transactions in
the ordinary course of the Bank's business with Mr. Shockey, and members of his
immediate family. All loans and commitments to loan included in such
transactions were made on substantially the same terms, including interest rates
and collateral on loans and repayment terms, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management,
each such loan and commitment to loan did not involve more than a normal risk of
uncollectibility or present other unfavorable features. All of such loans comply
with Regulation O of the federal banking regulations. The aggregate amount of
loans to Mr. Shockey and affiliates and other associates of Mr. Shockey was
$32,512 at December 31, 2004. As of the date hereof, all of such loans were
performing loans.
The following information is disclosed pursuant to Item 1.01 - Entry into a
Material Definitive Agreement of Form 8-K:
Compensation of Directors
- -------------------------
All of the directors of Ohio Valley also serve as directors of the Bank.
The directors of Ohio Valley are paid by the Bank for their services rendered as
directors of the Bank. The form and amount of compensation paid to Ohio Valley's
directors is reviewed periodically by the Compensation and Mangement Succession
Committee of Ohio Valley's Board of Directors as well as the full Board. On
December 14, 2004, upon the recommendation of the Compensation and Management
Succession Committee, Ohio Valley's Board of Directors increased the amount of
the annual retainer to be paid to each of Ohio Valley's directors by $650.
Accordingly, in December 2004, each director of Ohio Valley received an annual
retainer of $15,350 for services to be rendered in fiscal 2005. No other changes
were made to the directors' compensation package. A summary of the compensation
paid to Ohio Valley's directors is filed as Exhibit 10.9 to this Form 10-K and
incorporated herein by reference.
22
Long Range Bonus Program Awards
- -------------------------------
Ohio Valley maintains a bonus program (the "Long Range Bonus Program") for
the executive officers and certain other officers of Ohio Valley and the Bank.
Bonuses under the Long Range Bonus Program are calculated based on each
participant's annual performance evaluation and the Bank's achievement of
certain performance criteria. A summary of the Long Range Bonus Program is filed
as Exhibit 10.10 to this Form 10-K and incorporated herein by reference.
In December 2004, the Board of Directors of Ohio Valley, upon the
recommendation of the Compensation and Management Succession Committee, approved
the following bonuses for the executive officers of Ohio Valley under the Long
Range Bonus Program in respect of fiscal 2004 performance:
Jeffrey E. Smith $71,553
E. Richard Mahan $51,554
Larry E. Miller $46,266
Katrinka V. Hart $46,266
Sue Ann Bostic $44,937
Annual Results Bonus
- --------------------
Ohio Valley maintains an Annual Results Bonus Program. The objectives of
the Annual Results Bonus Program are (a) to motivate Ohio Valley's executive
officers and other employees and to reward them for the accomplishment of the
short-term goals of Ohio Valley and its subsidiaries; (b) to reinforce a strong
performance orientation with differentiation and variability in individual
awards based on contribution to annual results; and (c) to provide a competitive
compensation package that will attract, reward and retain employees of the
highest quality. All employees of Ohio Valley and its subsidiaries holding
positions with a pay grade of 8 or above are eligible to participate in the
Annual Results Bonus Program, including all of Ohio Valley's executive officers.
Bonuses payable to participants in the Annual Results Bonus Program are
based on the performance of Ohio Valley and its sibsidiaries against specific
performance targets designated by Ohio Valley's Board of Directors upon the
recommendation of its Compensation and Management Succession Committee. In
January 2004, the Board of Directors designated specific performance targets for
Ohio Valley and its subsidiaries related to earnings growth, return on assets,
return on equity and asset quality for fiscal 2004 (the "2004 Performance
Targets").
In December 2004, Ohio Valley's Board of Directors, upon the recommendation
of the Compensation and Management Succession Committee, (1) determined that the
2004 Performance Targets were achieved (due in part to the sale of Ohio Valley's
interest in ProCentury), (2) set the aggregate amount available for bonuses
under the Annual Results Bonus Program and (3) allocated the aggregate amount
available for bonuses among the various pay grades. All employees in the same
pay grade received the same bonus (except for Mr. Smith as explained below).
Accordingly, Ohio Valley's Board of Directors, upon the recommendation of the
Compensation and Management Succession Committee, approved bonuses for the
23
following executive officers of Ohio Valley under the Annual Results Bonus
Program in respect of fiscal 2004 performance:
E. Richard Mahan $2,000
Larry E. Miller $2,000
Katrinka V. Hart $2,000
Sue Ann Bostic $1,750
Based upon his pay grade, Jeffrey E. Smith, the President and Chief
Executive Officer of Ohio Valley, should have received a bonus of approximately
$2,000. However, the Compensation and Management Succession Committee exercised
its discretion and recommended to the Board of Directors that Mr. Smith receive
a $12,000 bonus under the Annual Results Bonus Program. Ohio Valley's Board of
Directors accepted the recommendation of the Compensation and Management
Succession Committee and awarded the $12,000 bonus to Mr. Smith.
All bonuses under the Annual Results Bonus Program were paid in December
2004 in cash in a single lump sum after deduction of payroll taxes and tax
withholdings.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item 10 by Items 401 and 405 of SEC
Regulation S-K is incorporated herein by reference to the information presented
in Ohio Valley's definitive proxy statement relating to the annual meeting of
shareholders of Ohio Valley to be held on April 13, 2005 (the "2005 Proxy
Statement"), under the captions "Proxy Item 1: Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" located on pages 7
through 15 and page 6, respectively, of the 2005 Proxy Statement. In addition,
certain information concerning executive officers of Ohio Valley is set forth in
Part I of this Annual Report on Form 10-K under the caption "Executive Officers
of the Registrant."
In accordance with the requirements of Item 406 of SEC Regulation S-K, the
Board of Directors of Ohio Valley has adopted a Code of Ethics covering the
directors, officers and employees of Ohio Valley and its affiliates, including,
without limitation, the principal executive officer, the principal financial
officer and the principal accounting officer of Ohio Valley. Interested persons
may obtain copies of the Code of Ethics without charge by writing to Ohio Valley
Banc Corp, Attention: E. Richard Mahan, Secretary, P.O. Box 240, Gallipolis,
Ohio 45631.
ITEM 11 - EXECUTIVE COMPENSATION
The information required under this Item 11 by Item 402 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
caption "Compensation of Executive Officers and Directors" located on pages 16
through 23 of the 2005 Proxy Statement.
24
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required under this Item 12 by Item 403 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
caption "Ownership of Certain Beneficial Owners and Management" located on pages
3 through 6 of the 2005 Proxy Statement.
Ohio Valley does not maintain any equity compensation plans requiring
disclosure pursuant to Item 201(d) of SEC Regulation S-K.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item 13 by Item 404 of SEC Regulation
S-K is incorporated herein by reference to the information presented under the
caption "Certain Relationships and Related Transactions" located on page 23 of
the 2005 Proxy Statement.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required under this Item 14 by Item 9(e) of Schedule 14A is
incorporated herein by reference to the information presented under the captions
"Pre-Approval of Services Performed by Independent Registered Public Accounting
Firm" and "Services Rendered by the Independent Registered Public Accounting
Firm" located on pages 25 through 29 of the 2005 Proxy Statement.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. (1) Financial Statements
The following consolidated financial statements of Ohio Valley appear in
the 2004 Annual Report to Shareholders, Exhibit 13, and are specifically
incorporated herein by reference under Item 8 of this Form 10-K:
Consolidated Statements of Condition as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended December 31,
2004, 2003 and 2002
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Financial Statements
25
(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 beginning on page 28 of this Form
10-K.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Ohio Valley has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
OHIO VALLEY BANC CORP.
Date: March 16 , 2005 By /s/Jeffrey E. Smith
-------- -------------------------
Jeffrey E. Smith
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 16 , 2005 by the following persons on behalf of
Ohio Valley and in the capacities indicated.
Name Capacity
---- --------
/s/Jeffrey E. Smith President, Chief Executive Officer
- ----------------------------- and Director
Jeffrey E. Smith
/s/Scott W. Shockey Vice President and Chief Financial
- ----------------------------- Officer (principal financial officer
Scott W. Shockey and principal accounting officer)
/s/Lannes C. Williamson Director
- -----------------------------
Lannes C. Williamson
/s/Anna P. Barnitz Director
- -----------------------------
Anna P. Barnitz
/s/W. Lowell Call Director
- -----------------------------
W. Lowell Call
/s/Robert H. Eastman Director
- -----------------------------
Robert H. Eastman
/s/Brent A. Saunders Director
- -----------------------------
Brent A. Saunders
/s/Steven B. Chapman Director
- -----------------------------
Steven B. Chapman
/s/Thomas E. Wiseman Director
- -----------------------------
Thomas E. Wiseman
/s/Harold A. Howe Director
- -----------------------------
Harold A. Howe
27
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
3(a) Amended Articles of Incorporation of Ohio Valley.
Incorporated herein by reference to Exhibit 3(a)
to Ohio Valley's Annual Report on Form 10-K for
fiscal year ending December 31, 1997 (SEC File No.
0-20914).
3(b) Code of Regulations of Ohio Valley. Incorporated
herein by reference to Exhibit 3(b) to Ohio
Valley's current report on Form 8-K (SEC File No.
0-20914) filed November 6, 1992.
4 Agreement to furnish instruments and agreements
defining rights of holders of long-term debt.
Filed herewith.
10.1 Split Dollar Agreement, dated November 11, 1996,
between Jeffrey E. Smith and The Ohio Valley Bank
Company. Incorporated herein by reference to
Exhibit 10.1 to Ohio Valley's Annual Report on
Form 10-K for fiscal year ending December 31, 2002
(SEC File No. 0-20914).
10.2 Schedule A to Exhibit 10.1 identifying other
identical Split Dollar Agreements between The Ohio
Valley Bank Company and executive officers of Ohio
Valley Banc Corp. Incorporated herein by reference
to Exhibit 10.2 to Ohio Valley's Annual Report on
Form 10-K for fiscal year ending December 31, 2002
(SEC File No. 0-20914).
10.3 Director Retirement Plan, dated October 10, 2002,
between Brent A. Saunders and The Ohio Valley Bank
Company. Incorporated herein by reference to
Exhibit 10.3 to Ohio Valley's Annual Report on
Form 10-K for fiscal year ending December 31, 2002
(SEC File No. 0-20914).
10.4 Schedule A to Exhibit 10.3 identifying other
identical director retirement plans between The
Ohio Valley Bank Company and executive officers
who are directors of Ohio Valley Banc Corp.
Incorporated herein by reference to Exhibit 10.4
to Ohio Valley's Annual Report on Form 10-K for
fiscal year ending December 31, 2002 (SEC File No.
0-20914).
10.5 Salary Continuation Plan, dated January 2, 1997,
between Jeffrey E. Smith and The Ohio Valley Bank
Company. Incorporated herein by reference to
Exhibit 10.5 to Ohio Valley's Annual Report on
Form 10-K for fiscal year ending December 31, 2002
(SEC File No. 0-20914).
28
10.6 Schedule A to Exhibit 10.5 identifying other
identical salary continuation plans between The
Ohio Valley Bank Company and executive officers of
Ohio Valley Banc Corp. Incorporated herein by
reference to Exhibit 10.6 to Ohio Valley's Annual
Report on Form 10-K for fiscal year ending
December 31, 2002 (SEC File No. 0-20914).
10.7 Deferred Compensation Plan, dated November 11,
2002, between Barney A. Molnar and The Ohio Valley
Bank Company. Incorporated herein by reference to
Exhibit 10.7 to Ohio Valley's Annual Report on
Form 10-K for fiscal year ending December 31, 2002
(SEC File No. 0-20914).
10.8 Schedule A to Exhibit 10.7 identifying other
identical deferred compensation plans between The
Ohio Valley Bank Company and executive officers or
directors of Ohio Valley Banc Corp. Incorporated
herein by reference to Exhibit 10.8 to Ohio
Valley's Annual Report on Form 10-K for fiscal
year ending December 31, 2002 (SEC File No.
0-20914).
10.9 Summary of Compensation for Directors of Ohio
Valley Banc Corp. Filed herewith.
10.10 Summary of Long Range Bonus Program of Ohio Valley
Banc Corp. Filed herewith.
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 Ohio Valley's Annual Report to Shareholders for
the fiscal year ended December 31, 2004 filed
herewith. (Not deemed filed except for portions
thereof specifically incorporated by reference
into this Annual Report on Form 10-K.)
21 Subsidiaries of Ohio Valley. Filed herewith.
29
23 Consent of Independent Accountant - Crowe Chizek
and Company LLC. Filed herewith.
31.1 Rule 13a-14(a)/15d-14(a) Certification (Principal
Executive Officer). Filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification (Principal
Financial Officer). Filed herewith.
32 Section 1350 Certifications (Principal Executive
Officer and Principal Accounting Officer). Filed
herewith.
99 Press Release issed by Ohio Valley on March 2,
2005. Filed herewith.
30