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, 1999
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 July 30, 1999
3,531,341 common shares
<PAGE>
OHIO VALLEY BANC CORP
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
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.......................................... 15
Part II - Other Information
Other Information and Signatures................................. 16
<PAGE>
OHIO VALLEY BANC CORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1999 1998
------------ ------------
ASSETS
Cash and noninterest-bearing deposits with banks $ 10,678 $ 12,342
Federal funds sold 1,475 375
------------ ------------
Total cash and cash equivalents 12,153 12,717
Interest-bearing balances with banks 584 795
Securities available-for-sale 55,512 26,255
Securities held-to-maturity 17,974 45,369
Total loans 380,660 347,130
Allowance for loan losses (4,688) (4,277)
------------ ------------
Net loans 375,972 342,853
Premises and equipment, net 8,800 8,360
Accrued interest receivable 2,739 2,723
Other assets 8,926 8,376
------------ ------------
Total assets $ 482,660 $ 447,448
============ ============
LIABILITIES
Noninterest-bearing deposits $ 43,383 $ 45,961
Interest-bearing deposits 328,687 281,356
------------ ------------
Total deposits 372,070 327,317
Securities sold under agreements to repurchase 11,020 19,066
Other borrowed funds 51,646 55,743
Accrued liabilities 6,127 4,642
------------ ------------
Total liabilities 440,863 406,768
------------ ------------
SHAREHOLDERS' EQUITY
Common stock ($1.00 stated value, 10,000,000
shares authorized; 3,531,341 and 2,818,413
shares issued and outstanding at June 30,
1999 and December 31, 1998) 3,531 2,818
Surplus 27,892 27,598
Retained earnings 10,360 9,797
Net unrealized gains on available-for-sale
securities 14 467
------------ ------------
Total shareholders' equity 41,797 40,680
------------ ------------
Total liabilities and
shareholders' equity $ 482,660 $ 447,448
============ ============
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 Six months ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Interest income:
Interest and fees on loans $ 8,753 $ 7,558 $17,098 $14,596
Interest on taxable securities 785 755 1,552 1,581
Interest on nontaxable securities 206 198 414 366
Dividends 75 61 143 120
Other interest 71 148 120 238
-------- -------- -------- --------
Total interest income 9,890 8,720 19,327 16,901
Interest expense:
Interest on deposits 3,845 3,349 7,426 6,644
Interest on repurchase agreements 109 158 207 268
Interest on other borrowed funds 604 333 1,301 611
-------- -------- -------- --------
Total interest expense 4,558 3,840 8,934 7,523
-------- -------- -------- --------
Net interest income 5,332 4,880 10,393 9,378
Provision for loan losses 557 535 1,005 892
-------- -------- -------- --------
Net interest income after provision 4,775 4,345 9,388 8,486
Other income:
Service charges on deposit accounts 298 223 554 424
Trust division income 59 55 116 106
Other operating income 319 228 585 479
Net realized gain (loss) on sale
of available-for-sale securities 63 63
-------- -------- -------- --------
Total other income 739 506 1,318 1,009
Other expense:
Salaries and employee benefits 2,191 1,917 4,330 3,803
Occupancy expense 253 163 482 312
Furniture and equipment expense 276 212 506 405
Data processing expense 107 88 212 207
Other operating expense 1,099 1,077 2,165 2,041
-------- -------- -------- --------
Total other expense 3,926 3,457 7,695 6,768
-------- -------- -------- --------
Income before income taxes 1,588 1,394 3,011 2,727
Provision for income taxes 447 400 838 766
-------- -------- -------- --------
NET INCOME $ 1,141 $ 994 $ 2,173 $ 1,961
======== ======== ======== ========
Earnings per share $ 0.33 $ 0.28 $ 0.62 $ 0.56
======== ======== ======== ========
See notes to the consolidated financial statements.
2
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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 Six months ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Balance at beginning of period $41,568 $37,788 $40,680 $36,834
Comprehensive income:
Net income 1,141 994 2,173 1,961
Net change in unrealized gain on
available-for-sale securities (402) (9) (453) (10)
-------- -------- -------- --------
Total comprehensive income 739 985 1,720 1,951
Proceeds from issuance of common
stock through the dividend
reinvestment plan 404 301 752
Cash paid in lieu of fractional shares
in stock split (15) (7) (15) (7)
Cash dividends (495) (381) (889) (741)
-------- -------- -------- --------
Balance at end of period $41,797 $38,789 $41,797 $38,789
======== ======== ======== ========
See notes to the consolidated financial statements.
3
<PAGE>
OHIO VALLEY BANC CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share data)
Six months ended June 30,
1999 1998
------------ ------------
Net cash from operating activities $ 4,837 $ 4,379
Investing activities
Proceeds from maturities of
securities available-for-sale 3,646 6,000
Purchases of securities available-
for-sale (6,063)
Proceeds from maturities of
securities held-to-maturity 370 5,977
Purchase of securities held-to-maturity (550) (10,255)
Proceeds from sale of equity securities 64
Change in interest-bearing deposits
in other banks 211 (38)
Net increase in loans (34,123) (20,204)
Purchase of premises and equipment, net (964) (1,129)
Purchases of insurance contracts 1 (580)
------------ ------------
Net cash from investing activities (37,408) (20,229)
Financing activities
Change in deposits 44,753 9,504
Cash dividends (889) (741)
Cash paid in lieu of fractional shares
in stock split (15) (7)
Proceeds from issuance of common stock 301 752
Change in securities sold under
agreements to repurchase (8,046) 6,815
Proceeds from long-term borrowings 4,500 16,164
Repayment of long-term borrowings (3,434) (6,383)
Change in other short-term borrowings (5,163) (2,118)
------------ ------------
Net cash from financing activities 32,007 23,986
------------ ------------
Change in cash and cash equivalents (564) 8,136
Cash and cash equivalents at beginning
of year 12,717 7,806
------------ -------------
Cash and cash equivalents at end of year $ 12,153 $ 15,942
============ =============
See notes to the consolidated financial statements
4
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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, Jackson Savings Bank 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 June 30, 1999, 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, 1998, 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 six months ended June 30,
1999 and 1998, Ohio Valley Banc Corp. paid interest in the amount of $8,368 and
$7,215, respectively. For the six months ended June 30, 1999 and 1998, Ohio
Valley Banc Corp. paid income taxes of $1,040 and $892, respectively.
Earnings per share is computed based on the weighted average shares outstanding
during the period. For the six months ended June 30, 1999 and 1998, weighted
average shares outstanding were 3,529,724 and 3,490,043, respectively. On April
7, 1999, the Board of Directors declared a five for four stock split, effected
in the form of a stock dividend, to shareholders of record on April 19, 1999.
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.
The Company utilized Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and reclassified
U.S. Government agency securities with an amortized cost of $27,676 from
held-to-maturity to available-for-sale. The securities were transferred on April
14, 1999 with management's intention of providing greater flexibility in meeting
customer and asset/liability needs.
(Continued)
5
<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:
June 30, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 14,297 $ 118 $ 14,415
U.S. Government agency
securities 34,734 48 $ (327) 34,455
Mortgage-backed securities 2,451 (106) 2,345
Marketable equity
securities 4,010 287 4,297
------------ ---------- ---------- ------------
Total securities $ 55,492 $ 453 $ (433) $ 55,512
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Government agency
securities $ 258 $ (5) $ 253
Obligations of state and
political subdivisions 17,369 $ 250 (173) 17,446
Mortgage-backed securities 347 1 (23) 325
------------ ---------- ---------- ------------
Total securities $ 17,974 $ 251 $ (201) $ 18,024
============ ========== ========== ============
December 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
------------ ---------- ---------- ------------
Securities Available-for-Sale
- -----------------------------
U.S. Treasury securities $ 17,807 $ 336 $ 18,143
U.S. Government agency
securities 4,057 67 $ (10) 4,114
Marketable equity
securities 3,591 407 3,998
------------ ---------- ---------- ------------
Total securities $ 25,455 $ 810 $ (10) $ 26,255
============ ========== ========== ============
Securities Held-to-Maturity
- ---------------------------
U.S. Treasury securities $ 100 $ 100
U.S. Government agency
securities 27,693 $ 431 $ (12) 28,112
Obligations of state and
political subdivisions 17,195 571 (21) 17,745
Mortgage-backed securities 381 1 (20) 362
------------ ---------- ---------- ------------
Total securities $ 45,369 $ 1,003 $ (53) $ 46,319
============ ========== ========== ============
(Continued)
6
<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 June 30, 1999,
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 $ 9,315 $ 9,376 $ 2,929 $ 2,935
Due in one to
five years 39,716 39,494 7,765 7,917
Due in five to
ten years 4,339 4,361
Due after ten years 2,594 2,486
Mortgage-backed sec. 2,451 2,345 347 325
------------ ------------ ------------ ------------
Total debt
securities $ 51,482 $ 51,215 $ 17,974 $ 18,024
============ ============ ============ ============
Gains and losses on the sale of securities are determined using the specific
identification method. Net gains on the sale of equity securities during the
first six months of 1999 were $63. There were no sales of debt securities during
the first six months of 1999 and no sales of debt and equity securities during
the first six months of 1998.
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
June 30, December 31,
1999 1998
------------ ------------
Real estate loans $ 181,587 $ 163,650
Commercial and industrial loans 110,823 96,116
Consumer loans 86,923 85,664
Other loans 1,327 1,700
------------ ------------
$ 380,660 $ 347,130
============ ============
At June 30, 1999 and December 31, 1998, loans on nonaccrual status were
approximately $2,001 and $981, respectively. Loans past due more than 90 days
and still accruing at June 30, 1999 and December 31, 1998 were $2,626 and
$2,106, respectively. Other real estate owned at June 30, 1999 and December 31,
1998 was unchanged at $31 .
(Continued)
7
<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 six months ended
June 30 is as follows:
1999 1998
------------ ------------
Balance - January 1, $ 4,277 $ 3,290
Loans charged off:
Real estate 24 71
Commercial 94 58
Consumer 590 692
------------ ------------
Total loans charged off 708 821
Recoveries of loans:
Real estate 13 38
Commercial 4 45
Consumer 97 94
------------ -----------
Total recoveries 114 177
Net loan charge-offs (594) (644)
Provision charged to operations 1,005 892
------------ ------------
Balance - June 30, $ 4,688 $ 3,538
============ ============
Information regarding impaired loans: June 30, December 31,
1999 1998
------------ ------------
Balance of impaired loans $ 471 $ 624
============ ============
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 471 $ 624
============ ============
Portion of allowance for loan losses
allocated to the impaired loan balance $ 200 $ 275
============ ============
Average investment in impaired
loans for the year $ 417 $ 632
============ ============
Interest on impaired loans was not material for the periods ended June 30, 1999
and December 31, 1998.
(Continued)
8
<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 central and southeastern
areas of Ohio as well as the Mason and Putnam counties of West Virginia.
Approximately 7.43% of total loans were unsecured at June 30, 1999 as compared
to 8.04% at December 31, 1998.
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, 1999, 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 $49,713 as compared to $46,106 at December 31,
1998.
NOTE 6 - OTHER BORROWED FUNDS
Other borrowed funds at June 30, 1999 and December 31, 1998 are comprised of
advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal
Reserve Bank Notes. Pursuant to collateral agreements with the FHLB, advances
are secured by certain qualifying first mortgage loans and by FHLB stock which
total $58,201 and $3,755 at June 30, 1999. Fixed rate FHLB advances of $36,300
mature through 2008 and have interest rates ranging from 4.88% to 6.15%. In
addition, variable rate FHLB borrowings represent $2,500.
Promissory notes, issued primarily by the parent company, have fixed rates of
5.15% to 7.00% and are due at various dates through a final maturity date of May
29, 2002.
Scheduled principal payments over the next five years are to be:
FHLB borrowings Promissory notes FRB Notes
--------------- ---------------- ---------
1999 $ 206 $ 2,266 $ 8,500
2000 14,188 2,062
2001 5,689 13
2002 5,336 5
2003 3,098
Thereafter 10,283
--------------- ---------------- ---------
$ 38,800 $ 4,346 $ 8,500
=============== ================ =========
(Continued)
9
<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 June 30, 1999, compared to December 31, 1998, and the
consolidated results of operations for the year-to-date and quarterly periods
ending June 30, 1999, compared to the same periods in 1998. 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 May 3, 1999, the Company entered into a purchase agreement to acquire two
West Virginia branches of Huntington National Bank. The two offices had combined
deposits of $27 million at December 31, 1998. These offices are the Milton
office, located at 280 East Main Street, Milton, and the Barboursville office,
located in the Krogers Supermarket at 5636 U.S. Route 60 East, Barboursville.
The purchase has been approved by the appropriate regulatory authorities and is
expected to be completed in the third quarter of 1999. Management entered into
the agreement to expand and enhance the Company's existing banking activities in
West Virginia.
Management will continue to grow into new markets by establishing three
Superbanks in Wal-Mart stores. Two branches will be located in West Virginia,
one in Huntington and one in South Charleston. The third branch will be located
in South Point, Ohio.
FINANCIAL CONDITION
The consolidated total assets of Ohio Valley Banc Corp. increased $35,212 or
7.9% to reach $482,660 at June 30, 1999. The contributing factor to this growth
in assets was from loans which grew $33,530. Loans were funded by growth in
deposits of $44,753 or 13.7%, of which a portion was used to reduce borrowed
funds and securities sold under agreements to repurchase which are collectively
down $12,143.
For the first half of 1999, loan growth was led by real estate mortgages
expanding $17,937 or 11.0%. The Company has generated a large volume of new
residential loans as well as refinances. Almost half of the growth has occurred
in Pike and Franklin counties in Ohio and Mason county in West Virginia. These
counties represent newer markets for the Company. For the same time period,
commercial loans expanded $14,707 or 15.3%, with the Columbus, Ohio market
generating a large portion of this growth. The Company has had a branch in
Columbus since 1997. Consumer loans are up slightly for the first six months of
1999. Management anticipates that it will continue its provision to the
allowance for loan
10
<PAGE>
losses at its current level for the foreseeable 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 June 30, 1999 was 1.23%, unchanged from
December 31, 1998.
Total deposit growth was led by time deposits increasing $31,453 or 17.4%
followed by savings and interest-bearing demand deposits increasing $15,878 or
15.7%. Noninterest-bearing demand deposits are down $2,578. During the first
half of 1999, management generated deposit growth through more aggressive
pricing on certificates of deposit, especially in new markets. Additionally,
management has been successful in generating new deposits with the Company's
Gold Club account which offers a NOW account combined with other banking
benefits. Management utilized the deposit growth to fund the strong loan growth
and to reduce borrowed funds.
Other borrowed funds are primarily advances from the Federal Home Loan Bank,
which are used to fund loan growth or short-term liquidity needs. Other borrowed
funds are down $4,097 from December 31, 1998. The decrease occurred primarily in
overnight borrowings. Furthermore, securities sold under agreements to
repurchase are down $8,046 from December 31, 1998.
Total shareholders' equity at June 30, 1999 of $41,797 was 2.7% greater than the
balance of $40,680 on December 31, 1998. Contributing to this increase was
year-to-date income of $2,173 and proceeds from the issuance of common stock
through the dividend reinvestment plan of $301 less cash dividends paid of $889,
or $.25 per share adjusted for the stock split. The cash dividend represents
40.9% of the year-to-date income. Management's decision to effect a five for
four stock split was generated by a desire to make the Company's common stock
more accessible to the smaller investor.
RESULTS OF OPERATIONS
Ohio Valley Banc Corp's net income was $1,141 for the second quarter and $2,173
for the first six months of 1999, up 14.8% and 10.8%, compared to $994 and
$1,961 for the same periods in 1998. Comparing year-to-date June 30, 1999 to
June 30, 1998, return on assets decreased from 1.02% to .93% and return on
equity increased from 10.51% to 10.61%. Second quarter earnings per share,
adjusted for the stock split, was $.33 per share, up 17.9% over last year's $.28
per share and for the first six months of 1999, earnings per share was $.62 per
share, up 9.7% over 1998's $.56. The primary contributor to the gain in net
income was net interest income which exceeded the year-to-date and second
quarter of last year by $1,015 or 10.8 % and $452 or 9.2%. The increase in net
interest income was primarily due to the growth in earning assets of $35,697
from December 31, 1998. Net interest income was negatively impacted in the first
six months of 1999 by a decline in the net interest margin resulting from a
decrease in interest rates during the fourth quarter of 1998.
The gain in net interest income was partially offset by net noninterest expense
increasing $618 or 10.7% for the first six months and increasing $236 or 8.0%
for the second quarter in 1999 compared to the same periods in 1998. Total other
income increased $309 or 30.6% for the first six months and $233 or 46.0% for
the second quarter in 1999 compared to the same periods in 1998. Contributing to
the gain
11
<PAGE>
was service charge income, impacted by the growth in deposit account volume,
which contributed an additional $130 and $75 in the year-to-date and second
quarter periods as compared to 1998. Total other expense increased $927 or 13.7%
for the first six months and $469 or 13.6% for the second quarter in 1999
compared to the same periods in 1998. Contributing the most to this increase was
salary and employee benefits, which are up $528 over the first six months of
1998 and are up $275 over the second quarter of 1998. This growth can be
attributed to the continuing establishment of additional offices and growth in
assets which require more people to service. As a result, the number of
full-time equivalent employees increased by 42 from June 30, 1998 to June 30,
1999. 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. Contributing
to the increase in other operating expense was computer software depreciation
and general increases in overhead expenses.
In May of 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, in October 1998 the Company
tested its core hardware and software applications. The review of the test
results produced no Year 2000 problems.
The awareness and assessment phases of the Company's Year 2000 effort are
complete. Management estimates that 90% of renovations have been completed.
Ninety percent of the Company's testing has been completed. Management planned
to have all renovations and testing completed by June 30, 1999, but has extended
the deadline to September 30, 1999 to allow testing for Loan Central to be
completed. 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.
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 was
approved by the Company's Board of Directors.
12
<PAGE>
CAPITAL RESOURCES
All of the capital ratio's exceeded the regulatory minimum guidelines as
identified in the following table:
Company Ratios Regulatory
June 30, 1999 December 31, 1998 Minimum
------------------ ------------------- ----------
Tier 1 risk-based capital 11.9% 12.6% 4.00%
Total risk-based capital ratio 13.2% 13.8% 8.00%
Leverage ratio 9.6% 9.3% 4.00%
Cash dividends paid of $889 for the first six months of 1999 represents a 20.0%
increase over the cash dividends paid during the same period in 1998. The
increase in cash dividends paid is due to the additional shares outstanding
during 1999 which were not outstanding during 1998 and to the increase in the
dividend paid per share. At June 30, 1999, approximately 71% of the shareholders
were enrolled in the dividend reinvestment plan. As part of the Company's stock
repurchase program, management has utilized 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, securities available-for-sale and
held-to-maturity securities maturing within one year of $71,178 represented
14.7% of total assets at June 30, 1999. 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, 1999, the Bank could borrow an
additional $51 million from the Federal Home Loan Bank. Management also expects
approximately $25 million in additional deposits upon the acquisition of two
West Virginia branches of Huntington National Bank expected to be completed in
the third quarter of 1999. The Company experienced a decrease of $564 in cash
and cash equivalents for the six months ended June 30, 1999. 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.
13
<PAGE>
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.
14
<PAGE>
OHIO VALLEY BANC CORP.
MATURITY ANALYSIS
<TABLE>
<CAPTION>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's 1998 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 June 30, 1999
Principal Amount Maturing in:
(dollars in thousands) There- Fair Value
1999 2000 2001 2002 2003 after Total 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Fixed interest rate loans $ 6,653 $ 6,239 $ 12,096 $ 18,175 $ 18,250 $162,512 $223,925 $228,515
Average interest rate 9.51% 11.96% 12.40% 11.38% 10.32% 8.23% 9.02%
Variable interest rate loans $ 36,261 $ 3,526 $ 4,658 $ 4,707 $ 3,227 $104,356 $156,735 $156,970
Average interest rate 9.52% 10.77% 9.25% 8.60% 8.16% 7.84% 8.36%
Fixed interest rate securities $ 9,216 $ 8,329 $ 10,301 $ 11,359 $ 16,385 $ 17,876 $ 73,466 $ 73,536
Average interest rate 7.11% 6.45% 6.40% 6.24% 6.20% 6.89% 6.54%
Other interest-bearing assets $ 2,059 $ 2,059 $ 2,059
Average interest rate 4.59% 4.59%
Rate-Sensitive Liabilities:
Noninterest-bearing checking $ 5,206 $ 4,963 $ 3,986 $ 3,507 $ 3,086 $ 22,635 $ 43,383 $ 43,383
Savings & Interest-bearing checking $ 17,365 $ 14,266 $ 11,797 $ 9,819 $ 8,226 $ 55,322 $116,795 $116,795
Average interest rate 2.85% 2.91% 2.96% 3.02% 3.07% 3.38% 3.15%
Time deposits $77,584 $102,551 $ 13,877 $ 5,706 $ 10,389 $ 1,785 $211,892 $212,845
Average interest rate 5.28% 5.41% 5.57% 6.00% 6.02% 6.76% 5.43%
Fixed interest rate borrowings $ 2,501 $ 14,989 $ 4,439 $ 5,336 $ 3,098 $ 10,283 $ 40,646 $ 40,691
Average interest rate 5.51% 5.36% 5.55% 5.42% 5.71% 5.36% 5.42%
Variable interest rate borrowings $ 22,020 $ 22,020 $ 22,020
Average interest rate 4.41% 4.33%
15
</TABLE>
<PAGE>
OHIO VALLEY BANC CORP
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 7, 1999,
for the purpose of electing directors. Shareholders received proxy materials
containing the information required by this item. Three directors, James L.
Dailey, Phil A. Bowman and W. Lowell Call were nominated for reelection and were
reelected. The summary of voting of the 2,825,436 shares outstanding were as
follows:
Director Candidates Shares voted: For Against Abstain
- ------------------- --------- ------- -------
James L. Dailey 2,224,336 2,110 2,470
Phil A. Bowman 2,226,444 2 2,470
W. Lowell Call 2,226,446 2,470
Proposal to increase the number of
authorized shares from 5,000,000 to
10,000,000 2,212,633 13,015 3,268
596,520 shares were not voted.
Item 5 - Other Information
- --------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibit 27 - Financial Data Schedule [Exhibit is filed herewith.]
B. Form 8-K dated May 5, 1999 describing the acquisition of two Huntington
Bancshares Inc. branches by the Company was filed and is incorporated into
this Form 10-Q by reference.
OHIO VALLEY BANC CORP.
------------------------------------
Date August 13, 1999 /S/ James L. Dailey
----------------- ------------------------------------
James L. Dailey
Chairman and Chief Executive Officer
Date August 13, 1999 /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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,678
<INT-BEARING-DEPOSITS> 584
<FED-FUNDS-SOLD> 1,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,512
<INVESTMENTS-CARRYING> 17,974
<INVESTMENTS-MARKET> 18,024
<LOANS> 380,660
<ALLOWANCE> 4,688
<TOTAL-ASSETS> 482,660
<DEPOSITS> 372,070
<SHORT-TERM> 28,580
<LIABILITIES-OTHER> 6,127
<LONG-TERM> 34,086
0
0
<COMMON> 3,531
<OTHER-SE> 38,266
<TOTAL-LIABILITIES-AND-EQUITY> 482,660
<INTEREST-LOAN> 17,098
<INTEREST-INVEST> 2,109
<INTEREST-OTHER> 120
<INTEREST-TOTAL> 19,327
<INTEREST-DEPOSIT> 7,426
<INTEREST-EXPENSE> 8,934
<INTEREST-INCOME-NET> 10,393
<LOAN-LOSSES> 1,005
<SECURITIES-GAINS> 63
<EXPENSE-OTHER> 7,695
<INCOME-PRETAX> 3,011
<INCOME-PRE-EXTRAORDINARY> 3,011
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,173
<EPS-BASIC> .62
<EPS-DILUTED> .62
<YIELD-ACTUAL> 4.60
<LOANS-NON> 2,001
<LOANS-PAST> 2,626
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 200
<ALLOWANCE-OPEN> 4,277
<CHARGE-OFFS> 708
<RECOVERIES> 114
<ALLOWANCE-CLOSE> 4,688
<ALLOWANCE-DOMESTIC> 2,876
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,812
</TABLE>
