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, 1998
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 of incorporation 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
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 the number of shares outstanding of the issuers classes of
commom stock, as of the latest practicable date.
Common stock, $1.00 stated value Outstanding at October 30, 1998
2,738,995 common shares
<PAGE>
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
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.......................................... 4
Condensed Consolidated Statements of Cash Flows.................. 5
Notes to the Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 11
Part II - Other Information
Other Information and Signatures................................. 16
<PAGE>
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
September 30, December 31,
1998 1997
------------ ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 8,658 $ 7,712
Federal funds sold 94
------------ ------------
Total cash and cash equivalents 8,658 7,806
Interest-bearing balances with banks 126 103
Securities available-for-sale 27,029 32,659
Securities held-to-maturity 45,027 39,419
Total loans 310,971 269,779
Allowance for loan losses (3,685) (3,290)
------------ ------------
Net loans 307,286 266,489
Premises and equipment, net 8,392 7,326
Accrued interest receivable 2,723 2,503
Other assets 8,551 7,790
------------ ------------
Total assets $ 407,792 $ 364,095
============ ============
LIABILITIES
Noninterest-bearing deposits $ 40,723 $ 37,100
Interest-bearing deposits 267,598 256,612
------------ ------------
Total deposits 308,321 293,712
Securities sold under agreements to repurchase 21,611 12,831
Other borrowed funds 34,979 19,479
Accrued liabilities 5,681 3,907
------------ ------------
Total liabilities 370,592 329,929
------------ ------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 5,000,000
shares authorized; 2,738,995 and 1,801,932
shares issued and outstanding at September 30,
1998 and December 31, 1997) 2,739 1,802
Surplus 27,037 25,930
Retained earnings 7,054 6,207
Net unrealized gains on available-for-sale
securities 370 227
------------ ------------
Total shareholders' equity 37,200 34,166
------------ ------------
Total liabilities and
shareholders' equity $ 407,792 $ 364,095
============ ============
See notes to the consolidated financial statements.
1
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OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
Interest income:
Interest and fees on loans $ 7,527 $ 6,617 $21,671 $19,201
Interest on taxable securities 838 826 2,406 2,418
Interest on nontaxable securities 213 156 579 464
Dividends 57 53 165 150
Other interest 60 87 207 174
-------- -------- -------- --------
Total interest income 8,695 7,739 25,028 22,407
Interest expense:
Interest on deposits 3,249 3,195 9,588 9,328
Interest on repurchase agreements
and other borrowed funds 622 344 1,500 975
-------- -------- -------- --------
Total interest expense 3,871 3,539 11,088 10,303
-------- -------- -------- --------
Net interest income 4,824 4,200 13,940 12,104
Provision for loan losses 491 266 1,383 768
-------- -------- -------- --------
Net interest income after provision 4,333 3,934 12,557 11,336
Other income:
Service charges on deposit accounts 254 209 679 589
Trust division income 54 49 160 145
Other operating income 255 195 733 563
-------- -------- -------- --------
Total other income 563 453 1,572 1,297
Other expense:
Salaries and employee benefits 2,003 1,802 5,727 5,202
Occupancy expense 211 139 521 390
Furniture and equipment expense 245 214 650 539
Data processing expense 89 100 280 412
Other operating expense 1,031 832 2,968 2,454
-------- -------- -------- --------
Total other expense 3,579 3,087 10,146 8,997
-------- -------- -------- --------
(Continued)
2
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OHIO VALLEY BANC CORP
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
Income before federal income taxes $ 1,317 $ 1,300 $ 3,983 $ 3,636
Provision for income taxes 359 364 1,101 1,006
-------- -------- -------- --------
Net income 958 936 2,882 2,630
-------- -------- -------- --------
Basic and diluted earnings per share: $ .35 $ .35 $ 1.06 $ .99
======== ======== ======== ========
Other comprehensive income, net of tax:
Change in unrealized gains on
securities 148 91 143 24
-------- -------- -------- --------
Comprehensive income $ 1,106 $ 1,027 $ 3,025 $ 2,654
======== ======== ======== ========
See notes to the consolidated financial statements.
3
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OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
Balance at beginning of period $36,090 $31,905 $34,166 $30,378
Net income 958 936 2,882 2,630
Proceeds from issuance of common
stock through the dividend
reinvestment plan 386 329 1,139 923
Cash paid in lieu of fractional shares (7) (11)
in stock split
Cash dividends (382) (356) (1,123) (1,039)
Net change in unrealized
appreciation on available-
for-sale securities 148 91 143 24
-------- -------- -------- --------
Balance at end of period $37,200 $32,905 $37,200 $32,905
======== ======== ======== ========
See notes to the consolidated financial statements.
4
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OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share data)
Nine months ended September 30,
1998 1997
------------ ------------
Net cash from operating activities $ 5,757 $ 4,104
Investing activities
Proceeds from maturities of
securities available-for-sale 7,000 3,000
Purchases of securities available-
for-sale (999) (6,314)
Proceeds from maturities of
securities held-to-maturity 12,034 9,696
Purchase of securities held-to-maturity (17,749) (11,370)
Change in interest-bearing deposits
in other banks (23) (17)
Net increase in loans (42,323) (10,506)
Purchase of premises and equipment, net (1,743) (867)
------------ ------------
Net cash from investing activities (43,803) (16,378)
Financing activities
Net change in deposits 14,609 16,671
Cash dividends (1,123) (1,039)
Cash paid in lieu of fractional shares
in stock split (7) (11)
Proceeds from issuance of common stock 1,139 923
Change in securities sold under
agreements to repurchase 8,780 6,405
Proceeds from long-term borrowings 20,164 11,200
Repayment of long-term borrowings (8,354) (5,312)
Change in other short-term borrowings 3,690 (9,135)
------------ ------------
Net cash from financing activities 38,898 19,702
------------ ------------
Change in cash and cash equivalents 852 7,428
Cash and cash equivalents at beginning
of year 7,806 8,688
------------ -------------
Cash and cash equivalents at end of year $ 8,658 $ 16,116
============ =============
See notes to the consolidated financial statements
5
<PAGE>
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. 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, 1998, 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 generally accepted accounting principles that might otherwise be
necessary in the circumstances. The Annual Report for Ohio Valley Banc Corp. for
the year ended December 31, 1997, 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. For the nine months ended September
30, 1998 and 1997, Ohio Valley Banc Corp. paid interest in the amount of $11,404
and $10,003, respectively. For the nine months ended September 30, 1998 and
1997, Ohio Valley Banc Corp. paid income taxes of $1,292 and $1,160,
respectively.
Earnings per share is computed based on the weighted average shares outstanding
during the period. For the nine months ended September 30, 1998 and 1997,
weighted average shares outstanding were 2,723,620 and 2,659,856, respectively.
On April 8, 1998, the Board of Directors declared a three for two stock split,
effected in the form of a stock dividend, to shareholders of record on April 20,
1998. The stock split was recorded by transferring from retained earnings an
amount equal to the stated value of the shares issued. Earnings and cash
dividends per share amounts have been retroactively adjusted to reflect the
effect of the stock split.
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income". Under this new accounting standard,
comprehensive income is now reported for all periods. Comprehensive income
includes both net income and other comprehensive income. Other comprehensive
income includes the change in unrealized gains and losses on securities
available-for-sale.
(Continued)
6
<PAGE>
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:
September 30, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 20,111 $ 469 $ 20,580
U.S. Government agency
securities 3,022 99 3,121
Marketable equity
securities 3,336 $ 8 3,328
------------ ---------- ---------- ------------
Total securities $ 26,469 $ 568 $ 8 $ 27,029
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 26,715 $ 772 $ 27,487
Obligations of state and
political subdivisions 17,909 594 $ 1 18,502
Corporate Obligations
Mortgage-backed securities 403 2 20 385
------------ ---------- ---------- ------------
Total securities $ 45,027 $ 1,368 $ 21 $ 46,374
============ ========== ========== ============
December 31, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury
securities $ 27,093 $ 353 $ 27,446
U.S. Government agency
securities 2,028 34 2,062
Marketable equity
securities 3,194 $ 43 3,151
------------ ---------- ---------- ------------
Total securities $ 32,315 $ 387 $ 43 $ 32,659
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 24,509 $ 126 $ 13 $ 24,622
Obligations of state and
political subdivisions 13,935 422 14,357
Corporate Obligations 503 3 506
Mortgage-backed securities 472 1 23 450
------------ ---------- ---------- ------------
Total securities $ 39,419 $ 552 $ 36 $ 39,935
============ ========== ========== ============
(Continued)
7
<PAGE>
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,
1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain borrowers 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 $ 8,798 $ 8,892 $ 2,606 $ 2,620
Due in one to
five years 14,335 14,809 33,705 34,669
Due in five to
ten years 5,049 5,376
Due after ten years 3,264 3,324
Mortgage-backed sec. 403 385
------------ ------------ ------------ ------------
Total debt
securities $ 23,133 $ 23,701 $ 45,027 $ 46,374
============ ============ ============ ============
Gains and losses on the sale of securities are determined using the specific
identification method. There were no sales of debt or equity securities during
the first nine months of 1998 or 1997.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
September 30, December 31,
1998 1997
------------ ------------
Real estate loans $ 140,328 $ 110,247
Commercial and industrial loans 85,929 78,124
Consumer loans 82,997 78,840
Other loans 1,717 2,568
------------ ------------
$ 310,971 $ 269,779
============ ============
At September 30, 1998 and December 31, 1997, loans on nonaccrual status were
approximately $810 and $1,019, respectively. Loans past due more than 90 days
and still accruing at September 30, 1998 and December 31, 1997 were $3,369 and
$3,177, respectively. Other real estate owned at September 30, 1998 and December
31, 1997 were $285 and $142, respectively.
(Continued)
8
<PAGE>
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:
1998 1997
------------ ------------
Balance - January 1, $ 3,290 $ 3,080
Loans charged off:
Real estate 97 3
Commercial 88 102
Consumer 1,011 670
------------ ------------
Total loans charged off 1,196 775
Recoveries of loans:
Real estate 40
Commercial 46 40
Consumer 122 110
------------ -----------
Total recoveries 208 150
Net loan charge-offs (988) (625)
Provision charged to operations 1,383 768
------------ ------------
Balance - September 30, $ 3,685 $ 3,223
============ ============
Information regarding impaired loans: September 30, December 31,
1998 1997
------------ ------------
Balance of impaired loans $ 624 $ 430
------------ ------------
Portion of impaired loan balance for which an
allowance for credit losses is allocated 624 430
------------ ------------
Portion of allowance for loan losses
allocated to the impaired loan balance 275 200
------------ ------------
Information regarding impaired loans: September 30, December 31,
1998 1997
------------ ------------
Average investment in impaired
loans for the year $ 632 $ 440
Interest income recognized on
impaired loans 0 0
(Continued)
9
<PAGE>
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 southeastern Ohio area.
Approximately 8.96% of total loans were unsecured at September 30, 1998 as
compared to 9.55% at December 31, 1997.
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, 1998, 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 $43,416 as compared to $39,643 at
December 31, 1997.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds are comprised of advances from the Federal Home Loan Bank
(FHLB), Federal Reserve Bank Notes (FRB)and promissory notes. Pursuant to
collateral agreements with the FHLB, advances are secured by certain qualifying
first mortgage loans which total $42,031 at September 30, 1998. Promissory notes
have been issued primarily by the Ohio Valley Banc Corp. and are due at various
dates through a final maturity date of May 29, 2002.
Interest September 30, December 31,
Maturity Rates 1998 1997
-------- ------- ------------ ------------
1998 6.15 $ 5,150 $ 15,096
1999 5.75 3,164
2000 6.00-6.15 1,500 1,500
2001 5.77-5.82 2,000
2002 5.80-6.10 3,251 1,957
Thereafter 5.13-5.85 12,956
------------ -------------
Total FHLB borrowings 28,021 18,553
Promissory notes 4.50-7.10 5,700 926
FRB notes 6.14 1,258
------------ -------------
Total $ 34,979 $ 19,479
============ =============
The following table is a summary of the scheduled principal payments by year for
these borrowings at September 30, 1998:
1998 1999 2000 2001 2002 Thereafter
---- ---- ---- ---- ---- ----------
FHLB borrowings $ 5,273 $ 3,617 $ 1,951 $ 2,452 $ 2,347 $ 12,381
Promissory notes $ 4,434 $ 1,236 $ 12 $ 13 $ 5
FRB notes $ 1,258
(Continued)
10
<PAGE>
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, 1998, compared to December 31, 1997, and the
consolidated results of operations for the year-to-date and quarterly periods
ending September 30, 1998, compared to the same periods in 1997. 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.
On April 8, 1998, the Company entered into a Definitive Purchase Agreement with
Jackson Savings Bank pursuant to which the Company will acquire Jackson Savings
as a wholly-owned subsidiary. Under the terms of the Agreement, each of the
19,400 shares of Jackson Savings will be exchanged for a number of the Company's
common shares with a total market value equal to $163.09. The proposed
acquisition is subject to certain conditions, including the approval of Jackson
Savings Bank shareholders and approval of certain regulatory authorities. The
transaction is expected to be completed in the fourth quarter of 1998. Jackson
Savings is a savings bank located in Jackson, Ohio with approximately $15.5
million in assets and $2.7 million in shareholders' equity at March 31, 1998.
Management entered into the agreement to expand and enhance the Company's
banking activities in Jackson County.
The Company opened its third Superbank in August. The office is located in the
new 189,000 square foot Wal-Mart SuperCenter in Cross Lanes, West Virginia. A
fourth Superbank will be located in the Big Bend Foodland in Pomeroy, Ohio and
is expected to open in the fourth quarter of this year. These offices provide
seven day a week banking and will allow the Company to market its services to a
new customer base.
FINANCIAL CONDITION
For the first nine months of 1998 total assets expanded $43,697 or 12% to reach
$407,792. The growth in assets was driven by strong loan demand; total loans are
up $41,192 or 15.3%. Funding the growth in assets were increases in borrowed
funds of $15,500, deposits of $14,609 and repurchase agreements of $8,780.
Loan growth was led by real estate mortgages expanding $30,081 driven by low
interest rates. Approximately 60% of the growth has occurred in Jackson and Pike
counties in Ohio and Mason county in West Virginia. These counties represent
newer markets for the Company. Management anticipates that it will continue its
provision to the allowance for loan losses at its current level for the
foreseeable
11
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future and believes the allowance is adequate to absorb inherent losses in the
portfolio based on collateral values and a comprehensive analysis of the
allowance for loan and lease loss which is performed on a quarterly basis. As a
percentage of total loans, the allowance for loan losses at September 30, 1998
was 1.19% down from 1.22% at December 31, 1997.
Total deposits at September 30, 1998, of $308,321 represents an increase of
$14,609 or 5.0% from December 31, 1997. Savings and interest-bearing demand
deposits accounted for a majority of the growth with an increase of $13,092
followed by noninterest-bearing deposits increasing $3,623. Due to the falling
rate environment, management preferred to grow deposits in variable rate
products instead of fixed rate time deposits. These balances were influenced by
more aggressive pricing on NOW and money market accounts combined with a larger
market area. With the growth in nonmaturity deposits and borrowed funds,
management relied less on time deposits, the Company's most expensive deposit
account. Time deposits decreased $2,106.
Securities sold under agreements to repurchase increased $8,780 from December
31, 1997 and is due mostly to one customer. Other borrowed funds are primarily
advances from the Federal Home Loan Bank (FHLB), which are used to fund loan
growth or short-term liquidity needs. FHLB borrowings have two distinct
advantages: they are less expensive than deposits for comparable terms and they
are not subject to early redemption. Other borrowed funds are up $15,500 from
December 31, 1997. A portion of the growth is related to the Bank participating
in a program with the Federal Reserve who deposits tax receipts in banks in the
form of collateralized interest-bearing notes. The balance of these notes at
September 30, 1998, was $1,258.
Total shareholders' equity at September 30, 1998 of $37,200 was 8.9% greater
than the balance of $34,166 on December 31, 1997. Contributing to this increase
was year-to-date income of $2,882 and proceeds from the issuance of common stock
through the dividend reinvestment plan of $1,139 less cash dividends paid of
$1,123, or $.41 per share adjusted for stock split. The cash dividend represents
39% of the year-to-date income.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp.'s net income was $958 for the third quarter and $2,882
for the first nine months of 1998, up 2.4% and 9.6%, compared to $936 and $2,630
for the same periods in 1997. Third quarter net income per share, adjusted for
the stock split, was $.35 equaling the previous year and for the first nine
months of 1998, net income per share was $1.06, up 7.1% over 1997's $.99.
Comparing year-to-date results for 1998 to 1997, return on average assets was
1.00% for both periods and return on average equity was 10.86% compared to
11.20%.
The increase in net income was primarily attributable to gains in net interest
income which exceeded the year-to-date and third quarter of last year by $1,836
and $624. The increase in net interest income was primarily due to the growth in
earning assets of $41,099 from December 31, 1997. The gain in net interest
income was partially offset by net noninterest expense increasing $874 for the
first nine months and increasing $382 for the third quarter in 1998 compared to
the same periods in 1997. The provision
12
<PAGE>
for loan losses was $1,383 for the nine months ending September 30, 1998,
compared to $768 for the same time period in 1997. The increase in provision
expense was related to the loan portfolio expanding 15.3% in 1998 and net loan
charge-offs increasing $363, primarily in consumer loans.
In 1998, total other income increased $275 for the first nine months and
increased $110 for the third quarter compared to the same periods in 1997.
Contributing to the gain was the collection of an outstanding insurance
commission of $41 and the increase in deposit service charges due to the growth
in account volume. In 1998, total other expense increased $1,149 or 12.8% over
the first nine months of 1997 and increased $492 or 15.9% over the third quarter
of 1997. With the establishment of additional offices and growth in assets which
require more people to service, the number of full-time equivalent employees
increased by 19 from September 30, 1997 to September 30, 1998. Salary and
employee benefits are up $525 over the first nine months of 1997 and are up $201
over the third quarter of 1997. Additionally, the Company awarded annual merit
increases. The growth in operations coupled with the investment in processing
technology provided for the increase in occupancy expense and furniture and
equipment expense. The upgrade in technology produced a decrease in data
processing expense. Contributing to the increase in other operating expense was
computer software depreciation and general increases in overhead expenses.
In May 1997, a six member committee was formed and charged with the
responsibility of ensuring that the Company will be ready for the Year 2000
transition. This committee has conducted extensive inventories of the Company's
computer software and hardware as well as other equipment that may be microchip
dependent. The vendors associated with the aforementioned hardware and software
were contacted to determine the product's Year 2000 readiness. A Year 2000 plan
has been developed which commits the Company to being Year 2000 compliant by
December 31, 1998, thereby affording the Company one full year to test all
mission critical systems to verify their viability for the Year 2000 and beyond.
The Company's core software applications, which process loans and deposits, were
developed with the Year 2000 in mind. Nevertheless, the Company is testing its
core hardware and software applications in the fourth quarter of 1998.
The awareness and assessment phases of the Company's Year 2000 effort are
complete. Management estimates that 90% of renovations have been completed. By
the end of 1998, 90% of the Company's testing efforts will have been completed.
Management plans to have all renovations and testing completed by March 31,
1999. Management anticipates a total compliance cost of less than $100,000 and
therefore such costs will not materially effect the Company's results of
operations, liquidity and capital resources. Much of the compliance costs are
related to the Company's testing efforts. Therefore, to date only minimal Year
2000 expenses have been incurred.
The risks associated with the Company's Year 2000 compliance relate primarily to
its relationships with critical business partners, which include service
suppliers and customers, and their ability to effectively address Year 2000
issues. In an effort to mitigate such risk, the Company has attempted to assess
the Year 2000 efforts and preparedness of our significant customers and service
suppliers. The Company has formulated a Year 2000 contingency plan which will be
submitted for approval in the fourth quarter of 1998.
13
<PAGE>
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
September 30, 1998 December 31, 1997 Minimum
------------------ ----------------- ----------
Tier 1 risk-based capital 12.6% 13.0% 4.00%
Total risk-based capital ratio 13.9% 14.2% 8.00%
Leverage ratio 9.1% 9.3% 4.00%
Cash dividends paid of $1,123 for the first nine months of 1997 represents a
8.1% increase over the cash dividends paid during the same period in 1997. The
increase in cash dividends paid is due to the additional shares outstanding
during 1998 which were not outstanding during 1997 and to the increase in the
dividend paid per share. For the nine months ending September 30, 1998, the
Company issued 31,195 shares under the dividend reinvestment and stock purchase
plan. At September 30, 1998, approximately 67% of the shareholders were enrolled
in the dividend reinvestment plan. Members of the plan invested $1,139 for the
first nine months of 1998 which exceeded year-to-date dividends paid.
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, securities available-for-sale and the fair
value of held-to-maturity securities maturing within one year of $38,433
represented 9.4% of total assets at September 30, 1998. In addition, the
Corporation has established a $16,900 line of credit with the Federal Home Loan
Bank (FHLB) in Cincinnati to further enhance the bank's ability to meet
liquidity demands. Furthermore, the Bank would be able to borrow an additional
$45,000 from the FHLB based on the Bank's available collateral. The Company
experienced an increase of $852 in cash and cash equivalents for the nine months
ended September 30, 1998. See the condensed consolidated statement of cash flows
on page 5 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 southeastern Ohio. 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.
14
<PAGE>
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
<TABLE>
<CAPTION>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's 1997 annual report and Form 10-K provide information about the management of interest rate risk.
The following table provides information about the Company's financial instruments that are sensitive to
changes in interest rates.
As of September 30, 1998
Principal Amount Maturing in:
(dollars in thousands) There- Fair Value
1998 1999 2000 2001 2002 after Total 09/30/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Fixed interest rate loans $ 3,019 $ 7,607 $ 9,402 $ 15,799 $ 18,297 $ 93,395 $147,519 $149,732
Average interest rate 10.85% 10.96% 12.30% 11.53% 11.18% 8.67% 9.68%
Variable interest rate loans $ 26,131 $ 6,065 $ 3,212 $ 6,235 $ 7,709 $114,100 $163,452 $163,452
Average interest rate 10.55% 9.77% 10.03% 9.73% 9.21% 8.08% 8.69%
Fixed interest rate securities $ 3,069 $ 13,077 $ 8,363 $ 10,325 $ 10,354 $ 26,308 $ 71,496 $ 73,403
Average interest rate 6.82% 6.89% 6.45% 6.40% 6.36% 6.67% 6.61%
Other interest-bearing assets $ 126 $ 126 $ 126
Average interest rate 5.05% 5.05%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 4,887 $ 4,659 $ 3,741 $ 3,292 $ 2,897 $ 21,247 $ 40,723 $ 40,723
Savings & Interest-bearing checking $ 12,638 $ 10,426 $ 8,648 $ 7,215 $ 6,054 $ 41,822 $ 86,803 $ 86,803
Average interest rate 2.77% 2.80% 2.84% 2.87% 2.91% 3.16% 2.99%
Time deposits $42,146 $ 92,096 $ 25,984 $ 6,484 $ 3,964 $ 10,121 $180,795 $183,055
Average interest rate 5.66% 5.54% 5.66% 5.89% 6.45% 6.24% 5.66%
Fixed interest rate borrowings $ 10,840 $ 4,389 $ 1,500 $ 2,000 $ 3,250 $ 13,000 $ 34,979 $ 34,629
Average interest rate 6.31% 6.11% 6.08% 5.80% 5.91% 5.47% 5.89%
Variable interest rate borrowings $ 21,611 $ 21,611 $ 20,596
Average interest rate 4.12% 4.08%
15
</TABLE>
<PAGE>
OHIO VALLEY BANC CORP
Part II - Other Information
Exhibits and Reports on Form 8-K
- --------------------------------
A. Exhibit 27 - Financial Data Schedule [Exhibit is filed herewith.]
B. No Form 8-K was filed for the quarter ending September 30, 1998.
OHIO VALLEY BANC CORP.
------------------------------------
Date November 13, 1998 /S/ James L. Dailey
------------------- ------------------------------------
James L. Dailey
Chairman and Chief Executive Officer
Date November 13, 1998 /S/ Jeffrey E. Smith
------------------- ------------------------------------
Jeffrey E. Smith
President, Chief Operating Officer
and Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,658
<INT-BEARING-DEPOSITS> 126
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,029
<INVESTMENTS-CARRYING> 45,027
<INVESTMENTS-MARKET> 46,374
<LOANS> 310,971
<ALLOWANCE> 3,685
<TOTAL-ASSETS> 407,792
<DEPOSITS> 308,321
<SHORT-TERM> 36,764
<LIABILITIES-OTHER> 5,681
<LONG-TERM> 19,826
0
0
<COMMON> 2,739
<OTHER-SE> 34,461
<TOTAL-LIABILITIES-AND-EQUITY> 407,792
<INTEREST-LOAN> 21,671
<INTEREST-INVEST> 3,150
<INTEREST-OTHER> 207
<INTEREST-TOTAL> 25,028
<INTEREST-DEPOSIT> 9,588
<INTEREST-EXPENSE> 11,088
<INTEREST-INCOME-NET> 13,940
<LOAN-LOSSES> 1,383
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,146
<INCOME-PRETAX> 3,983
<INCOME-PRE-EXTRAORDINARY> 3,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,882
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 5.14
<LOANS-NON> 810
<LOANS-PAST> 3,369
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 275
<ALLOWANCE-OPEN> 3,290
<CHARGE-OFFS> 1,196
<RECOVERIES> 208
<ALLOWANCE-CLOSE> 3,685
<ALLOWANCE-DOMESTIC> 2,520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,165
</TABLE>
