UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: SEPTEMBER 30, 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 October 31, 2001 3,442,716 common shares
OHIO VALLEY BANC CORP FORM 10-Q QUARTER ENDED SEPTEMBER 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) ================================================================================ September 30, December 31, 2001 2000 ------------- ------------ ASSETS Cash and noninterest-bearing deposits with banks $ 13,768 $ 14,569 Federal funds sold 14,650 ------------- ------------ Total cash and cash equivalents 28,418 14,569 Interest-bearing balances with banks 871 816 Securities available-for-sale 54,384 59,819 Securities held-to-maturity (estimated fair value: 2001 - $15,788, 2000 - $16,111) 15,085 15,767 Total loans 496,394 448,303 Less: Allowance for loan losses (6,025) (5,385) ------------- ------------ Net loans 490,369 442,918 Premises and equipment, net 8,865 9,285 Accrued income receivable 3,752 4,104 Intangible assets, net 1,299 1,396 Bank owned life insurance 10,925 9,408 Other assets 3,763 3,576 ------------- ------------- Total assets $ 617,731 $ 561,658 ============= ============= LIABILITIES Noninterest-bearing deposits $ 51,124 $ 47,661 Interest-bearing deposits 405,074 384,710 ------------- ------------- Total deposits 456,198 432,371 Securities sold under agreements to repurchase 18,535 18,345 Other borrowed funds 81,830 53,622 Obligated mandatorily redeemable capital securities of subsidiary trust 5,000 5,000 Accrued liabilities 10,015 7,828 ------------- ------------- Total liabilities 571,578 517,166 ------------- ------------- SHAREHOLDERS' EQUITY Common stock ($1.00 stated value, 10,000,000 shares authorized; 2001 - 3,564,706 shares issued, 2000 - 3,559,770 shares issued) 3,565 3,560 Additional paid-in capital 28,881 28,760 Retained earnings 15,667 13,817 Accumulated other comprehensive income 1,244 436 Treasury stock at cost (2001 - 116,990 shares, 2000 - 72,489 shares) (3,204) (2,081) ------------- ------------- Total shareholders' equity 46,153 44,492 ------------- ------------- Total liabilities and shareholders' equity $ 617,731 $ 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 Nine months ended September 30, September 30, 2001 2000 2001 2000 --------- --------- --------- --------- Interest and dividend income: Loans, including fees $ 11,145 $ 10,437 $ 32,261 $ 29,810 Securities: Taxable 666 862 2,202 2,522 Tax exempt 190 204 575 587 Dividends 82 82 244 231 Other Interest 76 42 267 229 --------- --------- --------- --------- 12,159 11,627 35,549 33,379 Interest expense: Deposits 4,729 5,338 14,907 14,871 Repurchase agreements 158 227 486 595 Other borrowed funds 1,046 717 2,710 1,974 Obligated mandatorily redeemable capital securities of subsidiary trust 132 397 --------- --------- --------- --------- 6,065 6,282 18,500 17,440 --------- --------- --------- --------- Net interest income 6,094 5,345 17,049 15,939 Provision for loan losses 1,092 456 2,165 1,165 --------- --------- --------- --------- Net interest income after provision 5,002 4,889 14,884 14,774 Noninterest income: Service charges on deposit accounts 757 432 2,229 1,155 Trust fees 53 52 168 163 Income from bank owned insurance 146 130 430 374 Other 316 276 923 826 --------- --------- --------- --------- 1,272 890 3,750 2,518 Noninterest expense: Salaries and employee benefits 2,464 2,267 7,417 6,981 Occupancy expense 317 354 943 1,019 Furniture and equipment expense 267 319 806 930 Data processing expense 185 144 408 332 Other 1,346 1,174 4,238 3,671 --------- --------- --------- --------- 4,579 4,258 13,812 12,933 --------- --------- --------- --------- Income before income taxes 1,695 1,521 4,822 4,359 Provision for income taxes 475 422 1,340 1,217 --------- --------- --------- --------- NET INCOME $ 1,220 $ 1,099 $ 3,482 $ 3,142 ========= ========= ========= ========= Earnings per share $ 0.35 $ 0.31 $ 1.00 $ 0.89 ========= ========= ========= ========= ================================================================================ 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 Nine months ended September 30, September 30, 2001 2000 2001 2000 --------- --------- --------- --------- Balance at beginning of period $ 45,426 $ 42,677 $ 44,492 $ 42,708 Comprehensive income: Net income 1,220 1,099 3,482 3,142 Net change in unrealized gain or loss on available-for-sale securities 398 443 808 303 --------- --------- --------- --------- Total comprehensive income 1,618 1,542 4,290 3,445 Proceeds from issuance of common stock through dividend reinvestment plan 125 124 125 317 Cash dividends (553) (527) (1,631) (1,550) Shares acquired for treasury (463) (535) (1,123) (1,639) --------- --------- --------- --------- Balance at end of period $ 46,153 $ 43,281 $ 46,153 $ 43,281 ========= ========= ========= ========= ================================================================================ See notes to the consolidated financial statements. 3
OHIO VALLEY BANC CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands, except per share data) ================================================================================ Nine months ended September 30, 2001 2000 ------------ ------------ Net cash provided by operating activities $ 8,000 $ 7,613 Investing activities Proceeds from maturities of securities available-for-sale 20,164 4,171 Purchases of securities available- for-sale (13,270) (6,876) Proceeds from maturities of securities held-to-maturity 1,464 1,226 Purchases of securities held-to-maturity (822) (2,450) Change in interest-bearing deposits in other banks (55) (294) Net increase in loans (49,616) (31,832) Purchases of premises and equipment, net (467) (754) Purchases of insurance contracts, net (1,145) (905) ------------ ------------ Net cash used in investing activities (43,747) (37,714) Financing activities Change in deposits 23,827 29,825 Cash dividends (1,631) (1,550) Proceeds from issuance of common stock 125 317 Purchases of treasury stock (1,123) (1,639) Change in securities sold under agreements to repurchase 190 843 Proceeds from long-term borrowings 39,125 12,250 Repayment of long-term borrowings (8,882) (12,052) Change in other short-term borrowings (2,035) (2,616) ------------ ------------ Net cash from financing activities 49,596 25,378 ------------ ------------ Change in cash and cash equivalents 13,849 (4,723) Cash and cash equivalents at beginning of year 14,569 19,000 ------------ ------------ Cash and cash equivalents at September 30, $ 28,418 $ 14,277 ============ ============ Cash paid for interest $ 18,894 $ 16,677 Cash paid for income taxes 1,912 1,155 ================================================================================ 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 September 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 3,456,661 and 3,513,844 for the three months ending September 30, 2001 and September 30, 2000, respectively. Weighted average shares outstanding were 3,467,768 and 3,523,399 for the nine months ending September 30, 2001 and September 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 September 30, 2001 ---------- ----------- ------------ --------- Securities Available-for-Sale - ----------------------------- U.S. Treasury securities $ 1,978 $ 1,978 U.S. Government agency securities 44,031 1,840 $ (1) 45,870 Mortgage-backed securities 1,779 46 1,825 Equity securities 4,711 4,711 ---------- ----------- ------------ --------- Total securities $ 52,499 $ 1,886 $ (1) $ 54,384 ========== =========== ============ ========= Securities Held-to-Maturity - --------------------------- Obligations of state and political subdivisions $ 14,866 $ 723 $ (13) $ 15,576 Mortgage-backed securities 219 (7) 212 ---------- ----------- ------------ --------- Total securities $ 15,085 $ 723 $ (20) $ 15,788 ========== =========== ============ ========= 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 September 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 $ 19,908 $ 20,098 $ 1,449 $ 1,461 Due in one to five years 26,101 27,750 6,556 6,910 Due in five to ten years 4,423 4,644 Due after ten years 2,438 2,561 Mortgage-backed sec. 1,779 1,825 219 212 ------------ ----------- ----------- ----------- Total debt securities $ 47,788 $ 49,673 $ 15,085 $ 15,788 ============ =========== =========== =========== 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 nine months of 2001 and 2000. NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: September 30, December 31, 2001 2000 ---------------- ---------------- Real estate loans $ 222,345 $ 209,724 Commercial and industrial loans 166,827 139,826 Consumer loans 106,603 98,013 Other loans 619 740 ---------------- ---------------- $ 496,394 $ 448,303 ================ ================ At September 30, 2001 and December 31, 2000, loans on nonaccrual status were approximately $3,879 and $2,948, respectively. Loans past due more than 90 days and still accruing at September 30, 2001 and December 31, 2000 were $3,157 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 nine months ended September 30 is as follows: 2001 2000 ---------------- ---------------- Balance - January 1, $ 5,385 $ 5,055 Loans charged off: Real estate 268 43 Commercial 218 15 Consumer 1,473 1,137 ------------------ ----------------- Total loans charged off 1,959 1,195 Recoveries of loans: Real estate 49 4 Commercial 17 Consumer 368 184 ------------------ ----------------- Total recoveries 434 188 ------------------ ----------------- Net loan charge-offs (1,525) (1,007) Provision charged to operations 2,165 1,165 ------------------ ----------------- Balance - September 30, $ 6,025 $ 5,213 ================== ================= Information regarding impaired loans is as follows: September 30, December 31, 2001 2000 -------------- --------------- Balance of impaired loans $ 837 $ 1,233 ============== =============== Portion of impaired loan balance for which an allowance for credit losses is allocated $ 837 $ 1,233 ============== =============== Portion of allowance for loan losses allocated to the impaired loan balance $ 410 $ 530 ============== =============== Average investment in impaired loans year-to-date $ 1,116 $ 1,266 ============== =============== Interest on impaired loans was not material for the periods ended September 30, 2001 and September 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 5.11% of total loans were unsecured at September 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 September 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 $51,810 as compared to $52,135 at December 31, 2000. NOTE 6 - OTHER BORROWED FUNDS Other borrowed funds at September 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 $ 71,297 $ 5,033 $ 5,500 $ 81,830 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 $106,945 and $4,711 at September 30, 2001. Fixed rate FHLB advances of $71,297 mature through 2010 and have interest rates ranging from 4.49% to 6.69%. Promissory notes, issued primarily by the parent company, have fixed rates of 4.88% to 7.00% and are due at various dates through a final maturity date of August 31, 2002. Scheduled principal payments at 9/30/2001 are: 12/31 FHLB borrowings Promissory notes FRB Notes Totals - ----- --------------- ---------------- --------- ---------- 2001 $ 4,978 $ 1,500 $ 5,500 $ 11,978 2002 13,015 3,533 16,548 2003 13,932 13,932 2004 12,486 12,486 2005 8,614 8,614 Thereafter 18,272 18,272 ---------------- ---------------- ---------- ---------- $ 71,297 $ 5,033 $ 5,500 $ 81,830 ================ ================ ========== ========== Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $31,380 at September 30, 2001 and $33,100 at December 31, 2000. Various investment securities from the Bank used to collateralize FRB notes totaled $6,170 at September 30, 2001 and $9,165 at December 31, 2000. Promissory notes were unsecured at September 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 September 30, 2001, compared to December 31, 2000, and the consolidated results of operations for the quarterly and year-to-date periods ending September 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 $56,073 or 10.0% during the first nine months to reach $617,731 at September 30, 2001. The factor contributing most to this growth in assets was loans which grew $48,091 or 10.7%. Loans were funded by long-term FHLB borrowings which increased $30,243 or 73.7% and growth in deposits which increased $23,827 or 5.5%. 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 $6,117 or 8.1%. 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 nine months of 2001, loan growth was led by commercial loans expanding $27,001 or 19.3%. This growth came mostly from loan originations within the Gallia, Jackson and Franklin counties of Ohio which accounted for 74% of the total increase. In addition, approximately 11% of commercial loan originations came from the West Virginia market areas. For the same period, real estate mortgages grew $12,621 or 6.0%, 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. In addition, consumer loans increased $8,590 or 8.8%. Virtually all of this increase occurred within indirect loans, particularly automobiles, where management has been more aggressive in its pricing of these products. Management believes the allowance is adequate to absorb probable and estimable 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 loss is performed on a quarterly basis to estimate its adequacy. As a percentage of total loans, the allowance for loan losses at September 30, 2001 was 1.21%, up from 1.20% at December 31, 2000. Total deposit growth was led by savings and interest-bearing demand deposits which increased by $20,615 or 17.6%. The Company's Gold Club product, offering customers a NOW account with other banking benefits, generated 22% of this overall growth in deposits and continues to be successful 10
through the first nine months of 2001. In addition, nearly $11,000 of additional deposit dollars were recognized within a few of the Company's large commercial deposit accounts. A portion of these deposits are temporary. Furthermore, non-interest bearing demand deposits increased $3,463 or 7.3% during the same period. This growth was slightly offset by a decline in time deposits of $251 or .1%, particularly jumbo certificates of deposit. During the first nine months 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 $28,208 from December 31, 2000. Management has focused on this source of funding based on lower interest rates experienced through the year-to-date period of 2001 and the ability to borrow for longer time periods as compared to traditional CD customers. The increase occurred primarily in long-term FHLB borrowings. Total shareholders' equity at September 30, 2001 of $46,153 was up by $1,661 as compared to the balance of $44,492 on December 31, 2000. Contributing to this increase was year-to-date comprehensive income of $4,290 less cash dividends paid of $1,631, or $.47 per share. This cash dividend represents 46.8% of year-to-date net income. There were minimal proceeds from the issuance of common stock through the dividend reinvestment plan during the first nine months 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 44,501 additional treasury shares which lowered equity by $1,123 during the first nine months of 2001. The stock repurchase program limits the purchase of shares to 5% of the total shares outstanding. As of October 31, 2001, the Company had over 50,100 shares available to purchase. RESULTS OF OPERATIONS Ohio Valley Banc Corp's net income was $1,220 for the third quarter and $3,482 for the first nine months of 2001, up by 11.0% and 10.8% compared to $1,099 and $3,142 for the same periods in 2000. Comparing year-to-date September 30, 2001 to September 30, 2000, return on assets increased from .78% to .80% and return on equity increased from 9.86% to 10.35%. Third quarter earnings per share was $.35 per share, up 12.9% over last year's $.31 per share. During the first nine months of 2001, earnings per share was $1.00 per share, up 12.4% from last year's $.89 per share. The primary contributors to the gain in net income was the continued increase to the Company's net interest margin as well as increases to noninterest income which exceeded the third quarter and year-to-date of last year by $382 and $1,232. Net interest income increased $749 or 14.0% for the third quarter and $1,110 or 7.0% over the first nine 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 $42,029 from December 31, 2000. Furthermore, during the first nine months 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 11
Qualitative Disclosure About Market Risk on page 14. The increase in net interest income for the third quarter of 2001 was reduced by an increase to provision expense of $636 for the same period as compared to 2000. The increase in net interest income during the first nine months of 2001 was offset by an increase to provision expense of $1,000 for the same period as compared to 2000. The year-to-date increase to provision expense was a result of an increase to charge offs, primarily commercial and consumer loans. The increase in net interest income after provision for the third quarter of 2001 was further strengthened by a decrease in net noninterest expense of $61 or 1.8% for the same period. For the first nine months of 2001, the increase in net interest income after provision was further strengthened by a decrease in net noninterest expense of $353 or 3.4% for the same period. Total noninterest income increased $382 or 42.9% for the third quarter and $1,232 or 48.9% over the first nine 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 $325 and $1,074 during the third quarter and year-to-date periods of 2001 as compared to the same periods in 2000. The quarterly increases to service charge income in 2001 as compared to 2000 are not expected to continue due to the implementation of these new products and services in the fourth quarter of 2000. Total noninterest expense increased $321 or 7.5% and $879 or 6.8% for the third 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 $197 over the third quarter of 2000 and are up $436 over the first nine 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 nine months of 2001. This has provided for the decrease in occupancy expense and furniture and equipment expense, which are collectively down $89 and $200 during the third quarter and year-to-date periods of 2001 as compared to 2000. Furthermore, data processing and other operating expense are up $213 and $643 over the third 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 September 30, 2001 December 31, 2000 Minimum ------------------ ----------------- ---------- Tier 1 risk-based capital 10.0% 11.2% 4.00% Total risk-based capital ratio 11.2% 12.5% 8.00% Leverage ratio 8.1% 8.5% 4.00% Cash dividends paid of $1,631 for the first nine months of 2001 represents a 5.2% 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 September 30, 2001, approximately 74% of the 12
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. 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 $85,122 represented 13.8% of total assets at September 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 September 30, 2001, the Bank could borrow an additional $48 million from the Federal Home Loan Bank. The Company experienced an increase of $13,849 in cash and cash equivalents for the nine months ended September 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 nine months of 2001. As of September 30, 2001 Principal Amount Maturing in: There- Fair Value 2001 2002 2003 2004 2005 after Total 09/30/01 <S> <C> <C> <C> <C> <C> <C> <C> <C> Rate-Sensitive Assets: Fixed interest rate loans $ 7,154 $ 7,478 $ 10,996 $ 18,670 $ 25,591 $262,795 $332,684 $335,888 Average interest rate 10.32% 11.24% 12.21% 10.74% 10.16% 8.07% 8.63% Variable interest rate loans $ 12,477 $ 41,639 $ 1,663 $ 4,336 $ 4,070 $ 99,525 $163,710 $165,225 Average interest rate 9.01% 7.32% 7.38% 7.21% 7.60% 7.82% 7.76% Fixed interest rate securities $ 6,557 $ 19,166 $ 6,869 $ 10,688 $ 8,808 $ 15,496 $ 67,584 $ 70,172 Average interest rate 5.12% 5.00% 6.54% 6.57% 7.29% 6.89% 6.55% Federal Funds Sold $ 14,650 $ 14,650 $ 14,650 Average interest rate 3.01% 3.01% Other interest-bearing assets $ 871 $ 871 $ 871 Average interest rate 2.20% 2.20% Rate-Sensitive Liabilities: Noninterest-bearing checking $ 7,362 $ 6,302 $ 5,394 $ 4,617 $ 3,953 $ 23,496 $ 51,124 $ 51,124 Savings & Interest-bearing checking $ 23,168 $ 19,146 $ 15,845 $ 13,133 $ 10,899 $ 55,357 $137,548 $137,548 Average interest rate 2.50% 2.52% 2.54% 2.56% 2.58% 2.67% 2.59% Time deposits $ 62,570 $131,387 $ 43,430 $ 15,317 $ 9,372 $ 5,450 $267,526 $272,642 Average interest rate 6.01% 5.46% 5.67% 5.29% 5.30% 5.71% 5.93% Fixed interest rate borrowings $ 6,479 $ 16,547 $ 13,932 $ 12,486 $ 8,614 $ 23,272 $ 81,330 $ 84,030 Average interest rate 6.08% 5.41% 5.37% 5.30% 5.42% 6.67% 5.80% Variable interest rate borrowings $ 24,035 $ 24,035 $ 24,035 Average interest rate 2.94% 2.94% (Continued) 14 </TABLE>
MATURITY ANALYSIS ================================================================================ Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued) The decline in prime rate during the first nine months 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 - ------------------------------------------------------------ None 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 September 30, 2001. OHIO VALLEY BANC CORP --------------------- Date November 14, 2001 /s/ Jeffrey E. Smith ----------------- --------------------- Jeffrey E. Smith President and Chief Executive Officer Date November 14, 2001 /s/ Larry E. Miller, II ----------------- ------------------------ Larry E. Miller, II Senior Vice President and Treasurer ================================================================================ 15