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, 2001 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, 2001 3,456,184 common shares
OHIO VALLEY BANC CORP FORM 10-Q QUARTER ENDED JUNE 30, 2001 ================================================================================ Part I - Financial Information Item 1 - Financial Statements Interim financial information required by Regulation 210.10-01 of Regulation S-X is included in this Form 10Q as referenced below: Consolidated Balance Sheets..................................... 1 Consolidated Statements of Income............................... 2 Condensed Consolidated Statements of Changes in Shareholders' Equity......................................... 3 Condensed Consolidated Statements of Cash Flows................. 4 Notes to the Consolidated Financial Statements.................. 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10 Item 3 - Quantitative and Qualitative Disclosure About Market Risk......................................... 14 Part II - Other Information Other Information and Signatures................................ 15
OHIO VALLEY BANC CORP CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) ================================================================================ June 30, December 31, 2001 2000 ------------- ------------ ASSETS Cash and noninterest-bearing deposits with banks $ 13,772 $ 14,569 Federal funds sold 3,750 ------------- ------------ Total cash and cash equivalents 17,522 14,569 Interest-bearing balances with banks 952 816 Securities available-for-sale 49,359 59,819 Securities held-to-maturity (estimated fair value: 2001 - $16,166, 2000 - $16,111) 15,640 15,767 Total loans 471,802 448,303 Less: Allowance for loan losses (5,671) (5,385) ------------- ------------ Net loans 466,131 442,918 Premises and equipment, net 9,057 9,285 Accrued income receivable 3,586 4,104 Intangible assets, net 1,331 1,396 Bank owned life insurance 10,184 9,408 Other assets 4,057 3,576 ------------- ------------- Total assets $ 577,819 $ 561,658 ============= ============= LIABILITIES Noninterest-bearing deposits $ 51,640 $ 47,661 Interest-bearing deposits 377,266 384,710 ------------- ------------- Total deposits 428,906 432,371 Securities sold under agreements to repurchase 19,492 18,345 Other borrowed funds 69,765 53,622 Obligated mandatorily redeemable capital securities of subsidiary trust 5,000 5,000 Accrued liabilities 9,230 7,828 ------------- ------------- Total liabilities 532,393 517,166 ------------- ------------- SHAREHOLDERS' EQUITY Common stock ($1.00 stated value, 10,000,000 shares authorized; 2001 - 3,559,773 shares issued, 2000 - 3,559,770 shares issued) 3,560 3,560 Additional paid-in capital 28,760 28,760 Retained earnings 15,000 13,817 Accumulated other comprehensive income 847 436 Treasury stock at cost (2001 - 98,589 shares, 2000 - 72,489 shares) (2,741) (2,081) ------------- ------------- Total shareholders' equity 45,426 44,492 ------------- ------------- Total liabilities and shareholders' equity $ 577,819 $ 561,658 ============= ============= ================================================================================ 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, 2001 2000 2001 2000 --------- --------- --------- --------- Interest and dividend income: Loans, including fees $ 10,727 $ 9,878 $ 21,116 $ 19,373 Securities: Taxable 726 852 1,536 1,660 Tax exempt 192 190 385 383 Dividends 82 77 162 149 Other Interest 140 103 191 187 --------- --------- --------- --------- 11,867 11,100 23,390 21,752 Interest expense: Deposits 4,922 4,902 10,178 9,534 Repurchase agreements 153 218 328 367 Other borrowed funds 874 658 1,664 1,257 Obligated mandatorily redeemable capital securities of subsidiary trust 132 265 --------- --------- --------- --------- 6,081 5,778 12,435 11,158 --------- --------- --------- --------- Net interest income 5,786 5,322 10,955 10,594 Provision for loan losses 646 407 1,073 709 --------- --------- --------- --------- Net interest income after provision 5,140 4,915 9,882 9,885 Noninterest income: Service charges on deposit accounts 774 390 1,472 723 Trust fees 60 58 115 111 Income from bank owned insurance 146 114 284 222 Other 331 304 606 573 --------- --------- --------- --------- 1,311 866 2,477 1,629 Noninterest expense: Salaries and employee benefits 2,591 2,343 4,954 4,714 Occupancy expense 310 340 626 665 Furniture and equipment expense 266 317 539 611 Data processing expense 115 118 222 189 Other 1,572 1,284 2,892 2,497 --------- --------- --------- --------- 4,854 4,402 9,233 8,676 --------- --------- --------- --------- Income before income taxes 1,597 1,379 3,126 2,838 Provision for income taxes 443 388 865 795 --------- --------- --------- --------- NET INCOME $ 1,154 $ 991 $ 2,261 $ 2,043 ========= ========= ========= ========= Earnings per share $ 0.33 $ 0.28 $ 0.65 $ 0.58 ========= ========= ========= ========= ================================================================================ See notes to the consolidated financial statements. 2
OHIO VALLEY BANC CORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (dollars in thousands) ================================================================================ Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 --------- --------- --------- --------- Balance at beginning of period $ 44,957 $ 42,850 $ 44,492 $ 42,708 Comprehensive income: Net income 1,154 991 2,261 2,043 Net change in unrealized gain or loss on available-for-sale securities 25 107 411 (140) --------- --------- --------- --------- Total comprehensive income 1,179 1,098 2,672 1,903 Proceeds from issuance of common stock through dividend reinvestment plan 193 193 Cash dividends (555) (527) (1,078) (1,023) Shares acquired for treasury (155) (937) (660) (1,104) --------- --------- --------- --------- Balance at end of period $ 45,426 $ 42,677 $ 45,426 $ 42,677 ========= ========= ========= ========= ================================================================================ 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, 2001 2000 ------------ ------------ Net cash provided by operating activities $ 4,839 $ 4,767 Investing activities Proceeds from maturities of securities available-for-sale 16,574 2,606 Purchases of securities available- for-sale (5,331) (6,368) Proceeds from maturities of securities held-to-maturity 911 1,118 Purchases of securities held-to-maturity (811) (718) Change in interest-bearing deposits in other banks (136) 415 Net increase in loans (24,286) (21,798) Purchases of premises and equipment, net (364) (723) Purchases of insurance contracts, net (530) (905) ------------ ------------ Net cash used in investing activities (13,973) (26,373) Financing activities Change in deposits (3,465) 17,690 Cash dividends (1,078) (1,023) Proceeds from issuance of common stock 193 Purchases of treasury stock (660) (1,104) Change in securities sold under agreements to repurchase 1,147 364 Proceeds from long-term borrowings 26,077 5,250 Repayment of long-term borrowings (7,117) (5,976) Change in other short-term borrowings (2,817) (299) ------------ ------------ Net cash from financing activities 12,087 15,095 ------------ ------------ Change in cash and cash equivalents 2,953 (6,511) Cash and cash equivalents at beginning of year 14,569 19,000 ------------ ------------ Cash and cash equivalents at June 30, $ 17,522 $ 12,489 ============ ============ Cash paid for interest $ 12,915 $ 10,979 Cash paid for income taxes 1,365 825 ================================================================================ 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, 2001, 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 that might otherwise be necessary in the circumstances. The Annual Report for Ohio Valley Banc Corp for the year ended December 31, 2000, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The provision for income taxes is based upon the effective income tax rate expected to be applicable for the entire year. For consolidated financial statement classification and cash flow reporting purposes, cash and cash equivalents include cash on hand, noninterest-bearing deposits with banks and federal funds sold. 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 3,466,293 and 3,519,434 for the three months ending June 30, 2001 and June 30, 2000, respectively. Weighted average shares outstanding were 3,473,414 and 3,530,453 for the six months ending June 30, 2001 and June 30, 2000, 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. 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 will no longer be amortized, but rather will be assessed regularly for impairment, with any such impairment recognized as a reduction to earnings in the period identified. Other identified intangible assets, such as core deposit intangible assets, will continue to be amortized over their estimated useful lives. The Company will be required to adopt this statement on January 1, 2002. The adoption of this statement will not materially impact the Company's financial statements. ================================================================================ (Continued) 5
OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 2 - SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of the securities, as presented in the consolidated balance sheet are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Values June 30, 2001 ---------- ----------- ------------ --------- Securities Available-for-Sale - ----------------------------- U.S. Treasury securities $ 500 $ 2 $ 502 U.S. Government agency securities 41,078 1,275 $ (1) 42,352 Mortgage-backed securities 1,868 8 1,876 Equity securities 4,629 4,629 ---------- ----------- ------------ --------- Total securities $ 48,075 $ 1,285 $ (1) $ 49,359 ========== =========== ============ ========= Securities Held-to-Maturity - --------------------------- Obligations of state and political subdivisions $ 15,404 $ 559 $ (24) $ 15,939 Mortgage-backed securities 236 (9) 227 ---------- ----------- ------------ --------- Total securities $ 15,640 $ 559 $ (33) $ 16,166 ========== =========== ============ ========= December 31, 2000 Securities Available-for-Sale - ----------------------------- U.S. Treasury securities $ 2,499 $ 9 $ 2,508 U.S. Government agency securities 50,127 711 $ (42) 50,796 Mortgage-backed securities 2,065 1 (18) 2,048 Equity securities 4,467 4,467 ----------- ------------ ------------ --------- Total securities $ 59,158 $ 721 $ (60) $ 59,819 =========== ============ ============ ========= Securities Held-to-Maturity - --------------------------- Obligations of state and political subdivisions $ 15,503 $ 383 $ (25) $ 15,861 Mortgage-backed securities 264 1 (15) 250 ----------- ------------ ------------ --------- Total securities $ 15,767 $ 384 $ (40) $ 16,111 =========== ============ ============ ========= ================================================================================ (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, 2001, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Available-for-Sale Held-to-Maturity -------------------------- -------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ------------ ----------- ----------- ----------- Debt securities: Due in one year or less $ 13,483 $ 13,603 $ 1,842 $ 1,853 Due in one to five years 27,095 28,239 6,698 7,003 Due in five to ten years 1,000 1,012 4,112 4,234 Due after ten years 2,752 2,849 Mortgage-backed sec. 1,868 1,876 236 227 ------------ ----------- ----------- ----------- Total debt securities $ 43,446 $ 44,730 $ 15,640 $ 16,166 ============ =========== =========== =========== 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 2001 and 2000. NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: June 30, December 31, 2001 2000 ---------------- ---------------- Real estate loans $ 212,635 $ 209,724 Commercial and industrial loans 155,150 139,826 Consumer loans 103,102 98,013 Other loans 915 740 ---------------- ---------------- $ 471,802 $ 448,303 ================ ================ At June 30, 2001 and December 31, 2000, loans on nonaccrual status were approximately $3,789 and $2,948, respectively. Loans past due more than 90 days and still accruing at June 30, 2001 and December 31, 2000 were $2,372 and $3,691, 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: 2001 2000 ---------------- ---------------- Balance - January 1, $ 5,385 $ 5,055 Loans charged off: Real estate 90 42 Commercial 15 15 Consumer 970 737 ------------------ ----------------- Total loans charged off 1,075 794 Recoveries of loans: Real estate 9 1 Commercial 16 Consumer 263 129 ------------------ ----------------- Total recoveries 288 130 ------------------ ----------------- Net loan charge-offs (787) (664) Provision charged to operations 1,073 709 ------------------ ----------------- Balance - June 30, $ 5,671 $ 5,100 ================== ================= Information regarding impaired loans is as follows: June 30, December 31, 2001 2000 -------------- --------------- Balance of impaired loans $ 949 $ 1,233 ============== =============== Portion of impaired loan balance for which an allowance for credit losses is allocated $ 949 $ 1,233 ============== =============== Portion of allowance for loan losses allocated to the impaired loan balance $ 550 $ 530 ============== =============== Average investment in impaired loans year-to-date $ 1,091 $ 1,266 ============== =============== Interest on impaired loans was not material for the periods ended June 30, 2001 and June 30, 2000. ================================================================================ (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 5.43% of total loans were unsecured at June 30, 2001 as compared to 6.25% at December 31, 2000. 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, 2001, 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 $52,900 as compared to $52,135 at December 31, 2000. NOTE 6 - OTHER BORROWED FUNDS Other borrowed funds at June 30, 2001 and December 31, 2000 are comprised of advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal Reserve Bank Notes. FHLB borrowings Promissory notes FRB Notes Totals --------------- ---------------- --------- ---------- 2001 $ 60,020 $ 4,519 $ 5,226 $ 69,765 2000 $ 44,753 $ 5,594 $ 3,275 $ 53,622 Pursuant to collateral agreements with the FHLB, advances are secured by certain qualifying first mortgage loans and by FHLB stock which total $90,030 and $4,629 at June 30, 2001. Fixed rate FHLB advances of $60,020 mature through 2010 and have interest rates ranging from 4.88% to 6.69%. Promissory notes, issued primarily by the parent company, have fixed rates of 5.00% to 7.00% and are due at various dates through a final maturity date of May 29, 2002. Scheduled principal payments at 6/30/2001 are: 12/31 FHLB borrowings Promissory notes FRB Notes Totals - ----- --------------- ---------------- --------- ---------- 2001 $ 6,718 $ 2,821 $ 5,226 $ 14,765 2002 13,044 1,698 14,742 2003 13,931 13,931 2004 9,485 9,485 2005 2,612 2,612 Thereafter 14,230 14,230 ---------------- ---------------- ---------- ---------- $ 60,020 $ 4,519 $ 5,226 $ 69,765 ================ ================ ========== ========== Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $29,620 at June 30, 2001 and $33,100 at December 31, 2000. Various investment securities from the Bank used to collateralize FRB notes totaled $6,170 at June 30, 2001 and $9,165 at December 31, 2000. Promissory notes were unsecured at June 30, 2001 and December 31, 2000. ================================================================================ 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, 2001, compared to December 31, 2000, and the consolidated results of operations for the quarterly and year-to-date periods ending June 30, 2001, compared to the same periods in 2000. 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 $16,161 or 2.9% during the first six months to reach $577,819 at June 30, 2001. The factor contributing most to this growth in assets was loans which grew $23,499 or 5.2%. Loans were funded by FHLB borrowings which increased $18,966 or 46.2%. In addition, loans were funded by continued maturities of various U.S. treasury and government agency securities which led to a total investment decrease of $10,587 or 14.0%. The Company's demand for these types of investments are decreasing due to the decline in yield on reinvestment opportunities as well as the reduced pledging requirements to support public fund deposits. During the first six months of 2001, loan growth was led by commercial loans expanding $15,324 or 11.0%. This growth came mostly from loan originations within the Franklin and Jackson counties of Ohio which accounted for 74% of the total increase. In addition, approximately 12% of commercial loan originations came from the West Virginia market areas. For the same period, consumer loans increased $5,089 or 5.2%. Virtually all of this increase occurred within indirect loans, particularly automobiles, where management has been more aggressive in its pricing of these products. In addition, real estate mortgages grew $2,911 or 1.4%, with the largest portion of growth occurring within the West Virginia market areas of Mason and Cabell county. Continued loan growth within these newer market areas is expected. Management believes the allowance is adequate to absorb inherent losses in the portfolio based on collateral values as well as a large portfolio mix of real estate mortgages. A comprehensive analysis of the allowance for loan and lease loss is performed on a quarterly basis to estimate its adequacy. As a percentage of total loans, the allowance for loan losses at June 30, 2001 and December 31, 2000 was 1.20%. Although total deposits have declined through the first half of 2001, savings and interest-bearing demand deposits have increased by $3,591 or 3.1%. The Company's Gold Club account continues to be successful in this area of deposit growth offering customers a NOW account with other banking benefits. In addition, non-interest bearing demand deposits have increased $3,979 or 8.3% during the same 10
period. This growth was completely offset by a decline in time deposits of $11,035 or 4.1%, particularly jumbo certificates of deposit. During the first half of 2001, management has been less aggressive in the pricing of its CD portfolio and has focused their loan funding efforts on less costly sources of funds (i.e. Federal Home Loan Bank borrowings). 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 up $16,143 from December 31, 2000. Management has focused on this source of funding based on lower interest rates and the ability to borrow for longer time periods as compared to traditional CD customers. The increase occurred primarily in long-term FHLB borrowings. Additionally, securities sold under agreements to repurchase are up $1,147 from December 31, 2000. Total shareholders' equity at June 30, 2001 of $45,426 was up by $934 as compared to the balance of $44,492 on December 31, 2000. Contributing to this increase was year-to-date comprehensive income of $2,672 less cash dividends paid of $1,078, or $.16 per share. This cash dividend represents 47.7% of year-to-date net income. There were minimal proceeds from the issuance of common stock through the dividend reinvestment plan during the first half of 2001. Management has instead utilized the proceeds from reinvested dividends and voluntary cash to purchase shares on the open market and redistribute these dollars back into the plan without the need for the issuance of common stock. Furthermore, as part of the stock repurchase program, the Company purchased 26,100 additional treasury shares which lowered equity by $660 during the first half of 2001. The stock repurchase program limits the purchase of shares to 5% of the total shares outstanding. As of July 31, 2001, the Company had over 69,200 shares available to purchase. RESULTS OF OPERATIONS Ohio Valley Banc Corp's net income was $1,154 for the second quarter and $2,261 for the first six months of 2001, up by 16.4% and 10.7% compared to $991 and $2,043 for the same periods in 2000. Comparing year-to-date June 30, 2001 to June 30, 2000, return on assets increased from .77% to .80% and return on equity increased from 9.66% to 10.19%. Second quarter earnings per share was $.33 per share, up 17.9% over last year's $.28 per share. During the first six months of 2001, earnings per share was $.65 per share, up 12.1% from last year's $.58 per share. The primary contributor to the gain in net income was noninterest income which exceeded the second quarter and year-to-date of last year by $445 and $848. Net interest income increased $464 or 8.7% for the second quarter and $361 or 3.4% over the first six months in 2001 as compared to the same periods in 2000. The increase in net interest income was primarily due to the growth in earning assets of $13,048 from December 31, 2000. Furthermore, during the first half of 2001, the Company's fixed rate liabilities have been repricing downward at a faster pace than fixed rate assets resulting in increases to the net interest margin. 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 increase in net interest income for the second quarter of 2001 was reduced by an increase to 11
provision expense of $239 for the same period as compared to 2000. The increase in net interest income during the first six months of 2001 was offset by an increase to provision expense of $364 for the same period as compared to 2000. The increase in net interest income after provision for the second quarter of 2001 was offset only slightly by an increase in net noninterest expense of $7 or .2% for the same period. For the first six months of 2001, the decrease in net interest income after provision was offset by a decline in net noninterest expense of $291 or 4.1% for the same period. Total noninterest income increased $445 or 51.4% for the second quarter and $848 or 52.1% over the first six months in 2001 as compared to the same periods in 2000. Contributing most to this gain was service charge income, impacted by the addition of new products and services as well as the growth in transaction account volume, which contributed an additional $384 and $749 during the second quarter and year-to-date periods of 2001 as compared to the same periods in 2000. Total noninterest expense increased $452 or 10.3% and $557 or 6.4% for the second quarter and year-to-date periods of 2001 as compared to the same periods in 2000. Contributing the most to this increase was salary and employee benefits, which are up $248 over the second quarter of 2000 and are up $240 over the first six months of 2000. These increases were affected mostly by general increases from annual merit increases as well as increases to incentive compensation plans as a result of continued success in earnings. The growth in additional offices and fixed assets experienced in 1999 and 2000 has been stable throughout the first half of 2001. This has provided for the decrease in occupancy expense and furniture and equipment expense, which are collectively down $81 and $111 during the second quarter and year-to-date periods of 2001 as compared to 2000. Furthermore, data processing and other operating expense are up $285 and $428 over the second quarter and year-to-date periods of 2001 as compared to 2000 due to new computer software depreciation and general increases in overhead expenses. CAPITAL RESOURCES All of the capital ratio's exceeded the regulatory minimum guidelines as identified in the following table: Company Ratios Regulatory June 30, 2001 December 31, 2000 Minimum ------------- ----------------- ------------ Tier 1 risk-based capital 10.8% 11.2% 4.00% Total risk-based capital ratio 12.0% 12.5% 8.00% Leverage ratio 8.4% 8.5% 4.00% Cash dividends paid of $1,078 for the first six months of 2001 represents a 5.4% increase over the cash dividends paid during the same period in 2000. The increase in cash dividends paid is largely due to the increase in the dividend rate paid per share. At June 30, 2001, approximately 73% of the shareholders 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. On February 28, 2001, the Company along with two other financial holding companies acquired BSG Title Services, a title insurance company based in Delaware, Ohio. The Company secured a 40% minority interest in this company by investing $20. The new acquisition takes advantage of the 12
Gramm-Leach-Bliley Act and further expands the Company's products and services. 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 $69,675 represented 12.1% of total assets at June 30, 2001. In addition, the Federal Home Loan Bank in Cincinnati offers advances to the Bank which further enhances the Bank's ability to meet liquidity demands. At June 30, 2001, the Bank could borrow an additional $62 million from the Federal Home Loan Bank. The Company experienced an increase of $2,953 in cash and cash equivalents for the six months ended June 30, 2001. 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. 13
OHIO VALLEY BANC CORP. MATURITY ANALYSIS <TABLE> <CAPTION> (dollars in thousands) Item 3. Quantitative and Qualitative Disclosure About Market Risk The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents repricing opportunities strictly by maturity date without regard for repricing dates for variable rate products. As compared to 12/31/00, there were no significant changes through the first six months of 2001. As of June 30, 2001 Principal Amount Maturing in: There- Fair Value 2001 2002 2003 2004 2005 after Total 06/30/01 <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate-Sensitive Assets: Fixed interest rate loans $ 7,556 $ 7,176 $ 12,731 $ 20,698 $ 24,432 $235,188 $307,781 $312,031 Average interest rate 10.17% 11.88% 11.98% 10.62% 9.97% 8.16% 8.76% Variable interest rate loans $ 29,253 $ 19,187 $ 1,857 $ 4,700 $ 4,730 $104,294 $164,021 $165,113 Average interest rate 9.26% 7.89% 7.97% 7.84% 8.25% 8.17% 8.32% Fixed interest rate securities $ 8,535 $ 13,243 $ 6,867 $ 10,689 $ 8,803 $ 15,578 $ 63,715 $ 65,525 Average interest rate 6.09% 5.88% 6.54% 6.57% 7.29% 6.96% 6.55% Federal Funds Sold $ 3,750 $ 3,750 $ 3,750 Average interest rate 3.99% 3.99% Other interest-bearing assets $ 952 $ 952 $ 952 Average interest rate 2.74% 2.74% Rate-Sensitive Liabilities: Noninterest-bearing checking $ 7,436 $ 6,365 $ 5,449 $ 4,664 $ 3,993 $ 23,733 $ 51,640 $ 51,640 Savings & Interest-bearing checking $ 20,377 $ 16,817 $ 13,902 $ 11,511 $ 9,545 $ 48,373 $120,525 $120,525 Average interest rate 2.69% 2.71% 2.74% 2.76% 2.78% 2.90% 2.80% Time deposits $105,572 $108,012 $ 35,202 $ 3,953 $ 1,866 $ 2,136 $256,741 $260,632 Average interest rate 6.11% 5.73% 5.93% 5.85% 6.58% 6.75% 5.93% Fixed interest rate borrowings $ 9,539 $ 14,742 $ 13,931 $ 9,485 $ 2,612 $ 19,230 $ 69,539 $ 69,597 Average interest rate 5.93% 5.46% 5.37% 5.35% 5.49% 6.89% 5.89% Variable interest rate borrowings $ 24,718 $ 24,718 $ 24,718 Average interest rate 3.29% 3.29% (Continued) 14 </TABLE>
MATURITY ANALYSIS ================================================================================ Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued) The decline in prime rate during the first half of 2001 had an immediate impact on the Company's net interest margin due to variable rate assets tied to prime exceeding variable rate liabilities tied to prime. As the year progresses, management expects that impact to be offset by a larger volume of fixed rate liabilities repricing downward quicker than fixed rate assets. Based on the gap model, the Company's one year cumulative gap is liability sensitive, which should benefit the Company over the long term in a declining rate environment. 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 11, 2001, for the purpose of electing directors. Shareholders received proxy materials containing the information required by this item. Three directors, Steven B. Chapman, Robert H. Eastman and Jeffrey E. Smith were nominated for reelection and were reelected. The summary of voting of the 2,743,603 shares outstanding were as follows: Director Candidate Shares voted: For Against Abstain - ------------------ --- ------- ------- Steven B. Chapman 2,735,287 8,316 Robert H. Eastman 2,732,726 10,877 Jeffrey E. Smith 2,736,603 7,000 Directors with terms expiring in 2002 are Phil A. Bowman, W. Lowell Call and James L. Dailey. Directors with terms expiring in 2003 are Merrill L. Evans, Lannes C. Williamson and Thomas E. Wiseman. Item 5 - Other Information - -------------------------- None Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- B. No reports on Form 8-K were filed for the quarter ending June 30, 2001. OHIO VALLEY BANC CORP --------------------- Date August 13, 2001 /s/ Jeffrey E. Smith --------------- --------------------- Jeffrey E. Smith President and Chief Executive Officer Date August 13, 2001 /s/ Larry E. Miller, II --------------- ------------------------ Larry E. Miller, II Senior Vice President and Treasurer ================================================================================ 15