-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSDswoAu0qLTmyktHBy/Nt8ExWCvFLZriOBxq8uDduA2XGZ6huH2O3BVLKtSBpuu bF/be1oi/NvM2jNcnV3AEA== 0000894671-01-000005.txt : 20010409 0000894671-01-000005.hdr.sgml : 20010409 ACCESSION NUMBER: 0000894671-01-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO VALLEY BANC CORP CENTRAL INDEX KEY: 0000894671 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311359191 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20914 FILM NUMBER: 1591460 BUSINESS ADDRESS: STREET 1: 420 THIRD AVE CITY: GALLIPOLIS STATE: OH ZIP: 45631 BUSINESS PHONE: 6144462631 10-K 1 0001.txt ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ended:___________________ Commission file number: 0-20914 Ohio Valley Banc Corp. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio --------------------------------------------- (State or other jurisdiction 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 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Shares, Without Par Value -------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S - K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2001: $82,263,212 The number of common shares of the registrant outstanding as of February 28, 2001: 3,477,282 common shares. Exhibit Index begins on page 21. Page 1 of 67 pages. Ohio Valley Banc Corp. Form l0-K December 31, 2000 DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 2000 Annual Report to Shareholders of Ohio Valley Banc Corp. (Exhibit 13) are incorporated by reference into Part I, Item 1 and Part II, Items 5, 6, 7A and 8. (2) Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 11, 2001 are incorporated by reference into Part III, Items 10, 11, 12 and 13. Contents of Form 10-K PART I Item 1 Business 3 Item 2 Properties 14 Item 3 Legal Proceedings 16 Item 4 Submission of Matters to a Vote of Security Holders 16 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6 Selected Financial Data 18 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A Quantitative and Qualitative Disclosures about Market Risk 18 Item 8 Financial Statements and Supplementary Data 18 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III Item 10 Directors and Executive Officers of the Registrant 19 Item 11 Executive Compensation 19 Item 12 Security Ownership of Certain Beneficial Owners and Management 19 Item 13 Certain Relationships and Related Transactions 19 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 SIGNATURES 20 EXHIBIT INDEX 21 Page 2 PART I ITEM 1 - BUSINESS General Description of Business Ohio Valley Banc Corp. (the Registrant), was incorporated under the laws of the State of Ohio on January 8, 1992. The Registrant is registered under the Bank Holding Company Act of 1956, as amended (BHC Act). A substantial portion of the Registrant's revenue is derived from cash dividends paid by The Ohio Valley Bank Company, the Registrant's wholly-owned subsidiary (the Bank). The principal executive offices of the Registrant are located at 420 Third Avenue, Gallipolis, Ohio 45631. The Bank was organized on September 24, 1872, under the laws governing private banking in Ohio. The Bank was incorporated in accordance with the general corporation laws governing savings and loan associations of the State of Ohio on January 8, 1901. The Articles of Incorporation of the Bank were amended on January 25, 1935, for the purpose of authorizing the Bank to transact a commercial savings bank and safe deposit business and again on January 26, 1950, for the purpose of adding special plan banking. The Bank was approved for trust powers in 1980 with trust services first being offered in 1981. The Bank's deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC). The Registrant's wholly-owned subsidiary, Loan Central, Inc. (Loan Central), was formed on February 1, 1996. Loan Central was incorporated under the Ohio laws governing finance companies. The Registrant has an equity interest in two minority-owned insurance companies. The first company, ProFinance Holdings Corporation, was acquired on October 5, 2000 and is engaged primarily in property and casualty insurance. The second company, Ohio Valley Financial Services, was acquired on January 10, 2000 as a joint venture with an insurance agency and is engaged primarily in life, homeowner and auto insurance. Both investments were approved under the guidelines of the State of Ohio Department of Insurance. The Bank is engaged in commercial and retail banking. Loan Central is engaged in consumer finance. Reference is hereby made to Item 1 (E), "Statistical Disclosure" and Item 8 of this Form 10-K for financial information pertaining to the Registrant's business through its subsidiaries. Description of Ohio Valley Banc Corp.'s Business The Registrant's business is incident to its 100% ownership of the outstanding stock of the Bank and Loan Central. The Bank is a full-service financial institution offering a blend of commercial, retail and agricultural banking services. Loans of all types and checking, savings and time deposits are offered, along with such services as safe deposit boxes, issuance of travelers' checks and administration of trusts. Loan Central, a consumer finance company, offers smaller balance consumer loans to individuals with nonconforming or nontraditional credit history. In addition to originating loans, the Bank invests in U.S. Government and agency obligations, interest-bearing deposits in other financial institutions and other investments permitted by applicable law. Page 3 PART I (continued) Revenues from loans accounted for 82.50% in 2000, 82.38% in 1999 and 80.50% in 1998 of total consolidated revenues. Revenues from interest and dividends on securities accounted for 9.63%, 10.36% and 12.23% of total consolidated revenues in 2000, 1999 and 1998, respectively. The Bank presently has sixteen offices, all of which offer automatic teller machines. Seven of these offices also offer drive-up services. The Bank accounted for substantially all of the Registrant's consolidated assets at December 31, 2000. The banking business is highly competitive. The market area for the Bank is concentrated primarily in the Gallia, Jackson, Pike and Franklin Counties of Ohio as well as the Mason, Kanawha and Cabell Counties of West Virginia. Some additional business originates from the surrounding Ohio counties of Meigs, Vinton, Scioto and Ross. Competition for deposits and loans comes primarily from local banks and savings associations, although some competition is also experienced from local credit unions, insurance companies and mutual funds. In addition, larger regional institutions, with substantially greater resources, are becoming increasingly visible. Loan Central's market presence further strengthens the Registrant's ability to compete in Gallia, Jackson and Pike County by serving a consumer base which may not meet the Bank's credit standards. Loan Central also operates in Lawrence County which is outside the Bank's primary market area. The principal methods of competition are the rates of interest charged for loans, the rates of interest paid for deposits, the fees charged for services and the availability and quality of services. The business of the Registrant and its subsidiaries is not seasonal, nor is it dependent upon a single or small group of customers. The Bank deals with a wide cross-section of businesses and corporations which are located primarily in southeastern Ohio. Few loans are made to borrowers outside this area. Lending decisions are made in accordance with written loan policies designed to maintain loan quality. The Bank originates commercial loans, commercial leases, residential real estate loans, home equity lines of credit, installment loans and credit card loans. The Bank believes that there is no significant concentration of loans to borrowers engaged in the same or similar industries and does not have any loans to foreign entities. Commercial lending entails significant risks as compared with consumer lending - - i.e., single-family residential mortgage lending, installment lending and credit card loans. In addition, the payment experience on commercial loans is typically dependent on adequate cash flows in order to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. Thus, commercial loans may be subject, to a greater extent, to adverse conditions in the economy generally or adverse conditions in a specific industry. The Registrant's subsidiaries make installment credit available to customers and prospective customers in their primary market area of southeastern Ohio. Credit approval for consumer loans requires demonstration of sufficiency of income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of the subsidiaries to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring the performance of their respective consumer portfolio and updating loan personnel. The Registrant's subsidiaries make credit life insurance and health and accident insurance available to all qualified buyers thus reducing their risk of loss when a borrower's income is terminated or interrupted. The Registrant's subsidiaries review their respective consumer loan portfolios monthly to charge off loans which do not meet that subsidiary's standards. Credit card accounts are administered in accordance with the same standards as applied to other consumer loans. Page 4 PART I (continued) Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower's continued financial stability and thus are more likely to be adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. The market area for real estate lending by the Bank is also located in southeastern Ohio. The Bank generally requires that the loan amount with respect to residential real estate loans be no more than 89% of the purchase price or the appraisal value of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower for the percentage exceeding 89%. These loans generally range from one year adjustable to thirty year fixed rate mortgages. In the fourth quarter of 2000, the Bank began offering secondary market real estate loans through the West Virginia Housing Authority to enhance customer service and loan pricing. Real estate loans are secured by first mortgages with evidence of title in favor of the Bank in the form of an attorney's opinion of title or a title insurance policy. The Bank also requires proof of hazard insurance with the Bank named as the mortgagee and as loss payee. Home equity lines of credit are generally made as second mortgages by the Bank. The home equity lines of credit are written with ten year terms but are reviewed annually. A variable interest rate is generally charged on the home equity lines of credit. Beginning in December 1996, the Bank began a phase of SuperBank branch openings with the objective of further enhancing customer service through extended hours and convenience as well as expanding the new market area of western West Virginia. From 1996 to 2000, the Bank opened seven SuperBank facilities within supermarkets and Wal-Mart stores. These new branches service the market areas of Gallia, Meigs and Lawrence counties in Ohio as well as the growing Kanawha and Cabell counties in West Virginia. In 1999, the Bank acquired two Huntington National Bank (HNB) branches in Milton and Barboursville, West Virginia (Cabell County), with the Milton office offering a traditional-style service. The Barboursville office, which represented a SuperBank facility, ceased its operations in 2000 with the opening of the nearby Huntington SuperBank office located in a Wal-Mart store. The Registrant acquired Jackson Savings Bank (Jackson), an Ohio state-chartered savings bank, in December 1998. Jackson then merged its operations into the Bank on November 11, 2000 with management's objective of improving operational efficiencies. The Registrant also continued to pursue other ventures that took advantage of newly enacted federal legislation to create new products and services. With the advent of the Gramm-Leach-Bliley Act, the Registrant participated as an investor in the acquisition of ProFinance Holdings Corporation, a property and casualty insurance underwriter and reinsurance company. The acquisition was made possible by combining the resources of five financial holding companies, a private equity firm and a group of insurance executives to purchase the insurance company on October 5, 2000. In addition, the Registrant formed a minority-owned subsidiary called Ohio Valley Financial Services. The subsidiary, which opened for business on January 2, 2001, is a joint venture insurance agency with an existing insurance agency (The Wiseman Agency, Inc.) that is located in Jackson, Ohio. Ohio Valley Financial Services will be able to offer customers life, homeowners and auto insurance. Page 5 PART I (continued) Supervision and Regulation The following is a summary of certain statutes and regulations affecting the Registrant and the Bank. The summary is qualified in its entirety by reference to such statutes and regulations. The Registrant is subject to regulation under the BHC Act and to the reporting requirements of, and examination and regulation by, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof and the taking of such stock securities as collateral for loans or extensions of credit to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the bank holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the bank holding company and other subsidiaries. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries. In November of 1999, the Gramm-Leach-Bliley, or Financial Services Modernization Act was enacted, amending the BHC Act, modernizing the laws governing the financial services industry. This Act authorized the creation of financial holding companies, a new type of bank holding company with powers greatly exceeding those of traditional bank holding companies. The Registrant became a financial holding company during 2000. In order to become a financial holding company, a bank holding company and all of its depository institutions must be well capitalized and well managed under federal banking regulations, and the depository institutions must have received a Community Investment Act rating of at least satisfactory. Financial holding companies may engage in a wide variety of financial activities; any activity in the future not already included in the list that the Federal Reserve and the Treasury Department consider financial in nature or incidental to financial activities; and any activity that the Federal Reserve Board determines complementary to a financial activity and which does not pose a substantial safety and soundness risk. These activities include securities underwriting and dealing activities, insurance and underwriting activities and merchant banking/equity investment activities. Because it has authority to engage in all financial activities, a financial holding company may have several affiliates that are functionally regulated by financial regulators other than the Federal Reserve Board, such as the SEC and state insurance regulators. The Gramm-Leach-Bliley Act directs the Federal Reserve Board to rely to the maximum extent possible on examinations and reports prepared by functional regulators. The Federal Reserve Board is also prohibited from applying any capital standard directly to any functionally regulated subsidiary that is already in compliance with the capital requirements of its functional regulator. Page 6 PART I (continued) If a subsidiary bank of a financial holding company fails to be both well capitalized and well managed, the financial holding company must enter into a written agreement with the Federal Reserve Board within 45 days to comply with all applicable capital and management requirements. Until the Federal Reserve Board determines that the bank is again well capitalized and well managed, the Federal Reserve Board may impose additional limitations or conditions on the conduct or activities of the financial holding company or any affiliate that the Federal Reserve Board finds to be appropriate or consistent with federal banking laws. If the financial holding company does not correct the capital or management deficiencies within 180 days, the financial holding company may be required to divest ownership or control of all banks, including state-chartered non-member banks and other well capitalized institutions owned by the financial holding company. If an insured bank subsidiary fails to maintain a satisfactory rating under the Community Reinvestment Act, the financial holding company may not engage in activities permitted only to financial holding companies until such time as the bank receives a satisfactory rating. In addition, the Gramm-Leach-Bliley Act fully closes the unitary thrift loophole which permits commercial companies to own and operate thrifts, reforms the Federal Home Loan Bank System to significantly increase community banks' access to loan funding and protects banks from discriminatory state insurance regulation. The Gramm-Leach-Bliley Act also includes new provisions in the privacy area, restricting the ability of financial institutions to share nonpublic personal customer information with third parties. As an Ohio state-chartered bank, the Bank is supervised and regulated by the Ohio Division of Financial Institutions. The Bank's deposits are insured up to applicable limits by the FDIC and are subject to the applicable provisions of the Federal Deposit Insurance Act. In addition, the holding company of any insured financial institution that submits a capital plan under the federal banking agencies' regulations on prompt corrective action guarantees a portion of the institution's capital shortfall, as discussed below. The Registrant's insurance company investments, ProFinance Holdings Corporation and Ohio Valley Financial Services, are both supervised and regulated by the State of Ohio Department of Insurance. Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of the Bank including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, and limitations on branching. Since June 1997, pursuant to federal legislation, the Bank has been authorized to branch across state lines, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The minimum ratio of capital to risk weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least 4.0 percentage points is to be comprised of common stockholders' equity (including retained earnings but excluding treasury stock), noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of Page 7 PART I (continued) consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2 Capital") may consist, among other things, of mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of allowance for loan and lease losses. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 3% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 100-200 basis points higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. State non-member banks, such as the Bank, are subject to similar capital requirements adopted by the FDIC. The Registrant and the Bank currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC. The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized. The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects the Registrant to serve as a source of strength to these banks, which may require them to retain capital for further investments in these banks, rather than for dividends for shareholders of the Registrant. These banks may not pay dividends to the Registrant if, after paying such dividends, they would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. These banks must have the approval of their regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of their current year's net profits and retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by these banks may be restricted at any time at the discretion of their regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for these banks. These provisions could have the effect of limiting the Registrant's ability to pay dividends on its outstanding common shares. Page 8 PART I (continued) Deposit Insurance Assessments and Recent Litigation The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"). The Bank is a member of the BIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both BIF and SAIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Because BIF became fully funded, BIF assessments for healthy commercial banks were reduced to $0 per year during 2000. Federal legislation, which became effective September 30, 1996, provides, among other things, for the costs of prior thrift failures to be shared by both the SAIF and the BIF. As a result of such cost sharing, BIF assessments for healthy banks during 2001 will be $0.020 per $100 in deposits. Based upon their level of deposits at December 31, 2000, the projected BIF assessment for the Bank would be $84,744 for 2001. Monetary Policy and Economic Conditions The business of commercial banks is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates the money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly influence the amount of bank loans and deposits and the interest rates charged and paid thereon, and thus have an effect on earnings. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels. Other Information Management anticipates no material effect upon the capital expenditures, earnings and competitive position of the Registrant or its subsidiaries by reason of any laws regulating or protecting the environment. The Registrant believes that the nature of the operations of the subsidiaries has little, if any, environmental impact. The Registrant, therefore, anticipates no material capital expenditures for environmental control facilities in its current fiscal year or for Page 9 PART I (continued) the foreseeable future. The subsidiaries may be required to make capital expenditures related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable. Neither the Registrant nor its subsidiaries have any material patents, trademarks, licenses, franchises or concessions. No material amounts have been spent on research activities and no employees are engaged full-time in research activities. As of December 31, 2000, the Registrant and its subsidiaries employed 237 full-time equivalent employees. Management considers its relationship with its employees to be good. Financial Information About Foreign and Domestic Operations and Export Sales The Registrant's subsidiaries do not have any offices located in a foreign country and they have no foreign assets, liabilities, or related income and expense. Statistical Disclosure The following section contains certain financial disclosures relating to the Registrant as required under the Securities and Exchange Commission's Industry Guide 3, "Statistical Disclosure by Bank Holding Companies", or a specific reference as to the location of the required disclosures in the Registrant's 2000 Annual Report to Shareholders which are hereby incorporated herein by reference. Ohio Valley Banc Corp. Statistical Information I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL A. & B. The average balance sheet information and the related analysis of net interest earnings for the years ending December 31, 2000, 1999 and 1998 are included in Table I - "Consolidated Average Balance Sheet & Analysis of Net Interest Income", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. C. Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2000, 1999 and 1998 are included in Table II - "Rate Volume Analysis of Changes in Interest Income & Expense", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. For purposes of these Tables, changes in interest due to volume and rate were determined as follows: Volume Variance - Change in volume multiplied by the previous year's rate. Rate Variance - Change in rate multiplied by the previous year's volume. Rate / Volume Variance - Change in volume multiplied by the change in rate. Page 10 PART I (continued) Ohio Valley Banc Corp. Statistical Information II. SECURITIES A. Types of Securities - Total securities on the balance sheet are comprised of the following classifications at December 31: (dollars in thousands) 2000 1999 1998 ---- ---- ---- Securities Available-for-Sale U.S. Treasury securities .......... $ 2,508 $ 7,510 $ 18,143 U.S. Government agency securities.. 50,796 41,522 4,114 Mortgage-backed securities......... 2,048 2,189 Marketable equity securities....... 4,467 4,150 3,998 --------- --------- --------- Total securities available-for-sale $ 59,819 $ 55,371 $ 26,255 ========= ========= ========= Securities Held-to-Maturity U.S. Treasury securities........... $ 100 U.S. Government agency securities.. 27,693 Obligations of states and political subdivisions........... $ 15,503 $ 15,690 17,195 Mortgage-backed securities......... 264 319 381 --------- --------- --------- Total securities held-to-maturity $ 15,767 $ 16,009 $ 45,369 ========= ========= ========= B. Information required by this item is included in Table III - "Securities", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this item 1 by reference. C. Excluding obligations of the U.S. Treasury and other agencies and corporations of the U.S. Government, no concentration of securities exists of any issuer that is greater than 10% of shareholders' equity of the Registrant. III. LOAN PORTFOLIO A. Types of Loans - Total loans on the balance sheet are comprised of the following classifications at December 31: (dollars in thousands) 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Real estate loans $209,724 $201,625 $163,650 $120,697 $112,635 Commercial loans 139,826 119,585 96,116 78,124 74,666 Consumer loans 98,013 88,942 85,664 78,878 75,047 All other loans 740 1,006 1,700 2,568 2,312 -------- -------- -------- -------- -------- $448,303 $411,158 $347,130 $280,267 $264,660 ======== ======== ======== ======== ======== Page 11 PART I (continued) Ohio Valley Banc Corp. Statistical Information B. Maturities and Sensitivities of Loans to Changes in Interest Rates - Information required by this item is included in table VII - "Maturity and Repricing Data of Loans", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. C.1. Risk Elements - Information required by this item is included in Table VI - "Summary of Nonperforming and Past Due Loans", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. 2. Potential Problem Loans - At December 31, 2000, there are approximately $530,000 of loans, which are not included in Table VI - "Summary of Nonperforming and Past Due Loans" within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders, for which management has some doubt as to the borrower's ability to comply with the present repayment terms. These loans and their potential loss exposure have been considered in management's analysis of the adequacy of the allowance for loan losses. 3. Foreign Outstandings - There were no foreign outstandings at December 31, 2000, 1999 or 1998. 4. Loan Concentrations - As of December 31, 2000, there were no concentrations of loans greater than 10% of total loans which are not otherwise disclosed as a category of loans pursuant to Item III (A) above. Also refer to the Consolidated Financial Statements regarding concentrations of credit found within Note A of the Notes to the Consolidated Financial Statements of the Registrant's 2000 Annual Report to Shareholders incorporated herein by reference. 5. No material amount of loans that have been classified by regulatory examiners as loss, substandard, doubtful, or special mention have been excluded from the amounts disclosed as impaired, nonaccrual, past due 90 days or more, restructured, or potential problem loans. D. Other Interest-Bearing Assets - As of December 31, 2000, there were no other interest-bearing assets that would be required to be disclosed under Item III (C) if such assets were loans. At December 31, 2000, other real estate owned totaled $34,000. Page 12 PART I (continued) Ohio Valley Banc Corp. Statistical Information IV. SUMMARY OF LOAN LOSS EXPERIENCE A. The following schedule presents an analysis of the allowance for loan losses for the years ended December 31: (dollars in thousands) 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Balance, beginning of year.... $5,055 $4,277 $3,390 $3,180 $2,481 Loans charged-off: Real estate............... 92 41 110 39 5 Commercial................ 61 454 130 215 78 Consumer.................. 1,642 1,298 1,433 961 673 -------- -------- -------- -------- -------- Total loans charged-off 1,795 1,793 1,673 1,215 756 Recoveries of loans: Real estate............... 4 13 40 1 Commercial................ 23 47 41 73 Consumer.................. 231 232 178 138 54 -------- -------- -------- -------- -------- Total recoveries of loans 235 268 265 180 127 Net loan charge-offs.......... (1,560) (1,525) (1,408) (1,035) (629) Provision charged to operations 1,890 2,303 2,295 1,245 1,328 -------- -------- -------- -------- -------- Balance, end of year.......... $5,385 $5,055 $4,277 $3,390 $3,180 ======== ======== ======== ======== ======== Ratio of Net Charge-offs to Average Loans - Information required by this item is included in Table V - "Allocation of the Allowance for Loan Losses", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. In addition, attention is directed to the caption "Loans" within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. B. Allocation of the Allowance for Loan Losses - Information required by this item is included in Table V - "Allocation of the Allowance for Loan Losses", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. V. DEPOSITS A. & B. Deposit Summary - Information required by this item is included in Table I - "Consolidated Average Balance Sheet & Analysis of Net Interest Income", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. Page 13 PART I (continued) Ohio Valley Banc Corp. Statistical Information C. & E. Foreign Deposits - There were no foreign deposits outstanding at December 31, 2000, 1999 or 1998. D. Schedule of Maturities - The following table provides a summary of total time deposits by remaining maturities for the period ended December 31, 2000: Over Over 3 months 3 through 6 through Over (dollars in thousands) or less 6 months 12 months 12 months --------- --------- --------- --------- Certificates of deposit of $100,000 or greater.................. $ 20,023 $ 18,685 $ 25,181 $ 24,083 Other time deposits of $100,000 or greater.................. 1,755 734 1,596 2,250 --------- --------- --------- --------- Total time deposits of $100,000 or greater.................. $ 21,778 $ 19,419 $ 26,777 $ 26,333 ========= ========= ========= ========= VI. RETURN ON EQUITY AND ASSETS Information required by this section is included in Table IX - "Key Ratios", within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated into this Item 1 by reference. VII. SHORT-TERM BORROWINGS The following schedule is a summary of securities sold under agreements to repurchase at December 31: (dollars in thousands) 2000 1999 1998 -------- -------- -------- Balance outstanding at period-end........... $ 18,345 $ 16,788 $ 19,066 -------- -------- -------- Weighted average interest rate at period-end 5.28% 4.54% 3.96% -------- -------- -------- Average amount outstanding during year...... $ 17,606 $ 13,961 $ 18,148 -------- -------- -------- Approximate weighted average interest rate during the year.......................... 4.88% 3.65% 3.77% -------- -------- -------- Maximum amount outstanding as of any month-end................................ $ 22,690 $ 16,788 $ 25,112 -------- -------- -------- ITEM 2 - PROPERTIES The Registrant owns no material physical properties except through the Bank. The Bank conducts its operations from its main office building at 420 Third Avenue, in Gallipolis, Ohio 45631. The main office building, Trust/Operations Center and six of the fifteen branch facilities are owned by the Bank. Page 14 PART I (continued) The Bank has fifteen branch offices. A summary of these properties are as follows: 1) Mini-Bank Office 437 Fourth Avenue, Gallipolis, OH 45631 2) Jackson Pike Office 3035 State Route 160, Gallipolis, OH 45631 3) Rio Grande Office 416 West College Avenue, Rio Grande, OH 45674 4) Jackson Office 738 East Main Street, Jackson, OH 45640 5) Waverly Office 507 W. Emmitt Avenue, Waverly, OH 45690 6) Columbus Office 3700 South High Street, Columbus, OH 43207 7) Point Pleasant Office 328 Viand Street, Point Pleasant, WV 25550 8) SuperBank-Gallipolis Office 236 Second Avenue, Gallipolis, OH 45631 9) SuperBank-Pomeroy Office 700 West Main Street, Pomeroy, OH 45769 10) Wal-Mart Gallipolis Office 2145 Eastern Avenue, Gallipolis, OH 45631 11) Wal-Mart Cross Lanes Office 100 Nitro Marketplace, Cross Lanes, WV 25315 12) Wal-Mart Southridge Office 2700 Mountaineer Blvd., S. Charleston, WV 25309 13) Wal-Mart Huntington Office 5170 US Rt. 60 East, Huntington, WV 25705 14) Milton Office 280 East Main Street, Milton, WV 25541 15) Wal-Mart South Point Office US Rt. 52, South Point, OH 45680 The Columbus, Point Pleasant, SuperBank and Wal-Mart offices are all leased. The lease term for the Columbus facility is from November 1, 1999 to October 31, 2002, with a base rent of $10,680 per year. The Point Pleasant location has a lease term from July 1, 1997 to June 30, 2017, with a base rent of $30,000 per year. The lease term for the SuperBank-Gallipolis facility is from December 1, 1996 to November 30, 2001, with an option to renew for an additional five years. The base rent is $8,900 per year. The lease term for the SuperBank-Pomeroy facility is from August 1, 1998 to July 31, 2003, with a base rent of $13,000 per year. The lease term for the Wal-Mart Gallipolis location is from May 20, 1998 to May 31, 2003, with a base rent of $25,000 per year. The lease term for the Wal-Mart Cross Lanes location is from August 19, 1998 to August 31, 2003, with a base rent of $25,000 per year. The lease term for the Wal-Mart Southridge location is from August 27, 1999 to August 31, 2004, with a base rent of $32,000 per year. The lease term for the Wal-Mart Huntington facility is from February 1, 2000 to January 31, 2005, with a base rent of $25,000 per year. The lease term for the Wal-Mart South Point location is from November 4, 1999 to November 30, 2004, with a base rent of $25,000 per year. The Bank owns a facility at 143 Third Avenue, Gallipolis, Ohio used for additional office space. The Bank also owns a facility at 441 Second Avenue, Gallipolis, Ohio, which it leases to Caldwell Miller Financial Group, Inc. The primary lease term is from July 1, 1997 to June 30, 2002, with a base rent of $13,800 per year. Loan Central leases four facilities used as consumer finance offices located at 2145-E Eastern Avenue, Gallipolis, Ohio 45631; 348 County Road 410, Suite 3, South Point, Ohio 45680; 345 East Main Street, Jackson, Ohio 45640; and 505 West Emmitt Avenue, Suite 3, Waverly, Ohio 45690. The lease term for the Gallipolis office is from February 1, 1999 to February 1, 2004, with a base rent of $27,000 in 2000, $25,900 in 2001, $26,400 in 2002, $26,800 in 2003 and $2,200 for one month in 2004. The lease term for the South Point office is from February 1, 1999 to February 1, 2004, with a base rent of $18,000 per year. The lease term for the Jackson office is from August 1, 2000 to July 31, 2005, with a base rent of $21,000 Page 15 PART I (continued) per year. The lease term for the Waverly office is from April 1, 1999 to March 31, 2004, with a base rent of $9,600 per year. Ohio Valley Financial Services and the Bank both conduct business in and lease an office located at 221 Main Street, Jackson, Ohio 45640. Both businesses share the lease cost of $5,400 per year. The lease term is from July 1, 1999 to July 1, 2002. Management considers its properties to be satisfactory for its current operations. ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings against the Registrant or its subsidiaries, other than ordinary litigation incidental to their respective businesses. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted during the fourth quarter of 2000 to a vote of security holders, by solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to Executive Officers who are directors is incorporated by reference to the information appearing under the caption "Election of Directors" on page 3 of the Registrant's 2001 Proxy Statement. Executive officers not required to be disclosed in the Proxy Statement are presented in the table below. Executive officers serve at the pleasure of the Board of Directors. Current Position and Name and Age Business Experience During Past 5 Years - ------------------ --------------------------------------- Sue Ann Bostic, 59 Vice President of the Registrant beginning 1996, Senior Vice President, Administrative Group of the Bank beginning 1996, Vice President, Support Services Division of the Bank from 1993 to 1995. Cherie A. Barr, 34 Vice President of the Registrant beginning 1998, President of Loan Central beginning 2000, President and Secretary of Loan Central from 1999 to 2000, Senior Vice President and Secretary of Loan Central from 1998 to 1999, Secretary of Loan Central from 1997 to 1998, Office Manager of Loan Central from 1996 to 1997, Office Manager, American General Finance, Gallipolis, Ohio from 1994 to 1996. Katrinka V. Hart, 42 Vice President of the Registrant beginning 1995, Senior Vice President, Retail Bank Group of the Bank beginning 1995. Mario P. Liberatore, 55 Vice President of the Registrant beginning 1997, Senior Vice President, West Virginia Bank Group of the Bank beginning 1997, President of Bank One, Point Pleasant, West Virginia, N.A. from 1995 to 1997. Page 16 PART I (continued) Current Position and Name and Age Business Experience During Past 5 Years - ------------------ --------------------------------------- E. Richard Mahan, 55 Senior Vice President and Secretary of the Registrant beginning 2000, Executive Vice President and Secretary of the Bank beginning 2000, Senior Vice President of the Registrant from 1999 to 2000, Executive Vice President of the Bank from 1999 to 2000, Vice President of the Registrant from 1995 to 1998, Senior Vice President, Commercial Bank Group of the Bank from 1995 to 1998. Larry E. Miller, II, 36 Senior Vice President and Treasurer of the Registrant beginning 2000, Executive Vice President and Treasurer of the Bank beginning 2000, Senior Vice President of the Registrant from 1999 to 2000, Executive Vice President of the Bank from 1999 to 2000, Vice President of the Registrant from 1995 to 1998, Senior Vice President, Financial Bank Group of the Bank from 1995 to 1998. Harold A. Howe, 51 Vice President of the Registrant beginning 1998, President of Jackson from 1994 to 2000. David L. Shaffer, 42 Vice President of the Registrant beginning 2000, Senior Vice President, Commercial Bank Group of the Bank beginning 2000, Vice President, Commercial Lending of the Bank from 1999 to 2000, Vice President, Retail Lending of the Bank from 1994 to 1999. Sandra L. Edwards, 53 Vice President of the Registrant beginning 2000, Senior Vice President, Financial Bank Group of the Bank beginning 2000, Vice President, Management Information Systems of the Bank from 1999 to 2000, Assistant Vice President, Operations Center Manager of the Bank from 1993 to 1999. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required under this item is located under the caption "Summary of Common Stock Data" in the Registrant's 2000 Annual Report to Shareholders. In addition, attention is directed to the caption "Capital Resources" within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and to Note P - "Regulatory Matters". All such information is incorporated herein by reference. The Registrant was not involved in any sale of unregistered securities. Page 17 PART II (continued) ITEM 6 - SELECTED FINANCIAL DATA The information required under this item is incorporated by reference to the information appearing under the caption "Selected Financial Data" of the Registrant's 2000 Annual Report to Shareholders. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Operations" appears within the Registrant's 2000 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required under this item is included in Table VIII - "Rate Sensitivity Analysis" and the caption "Liquidity and Interest Rate Sensitivity" found within Management's Discussion and Analysis of Operations of the Registrant's 2000 Annual Report to Shareholders and is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Registrant's consolidated financial statements and related notes are listed below and incorporated herein by reference to the 2000 Annual Report to Shareholders. The "Report of Independent Auditors" and the unaudited supplementary "Consolidated Quarterly Financial Information (unaudited)" specified by Item 302 of Regulation S-K appear within the 2000 Annual Report to Shareholders and are incorporated by reference. Consolidated Statements of Condition as of December 31, 2000 and 1999 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to the Consolidated Financial Statements Report of Independent Auditors ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No response required. PART III Information relating to the following items is included in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 11, 2001 ("2001 Proxy Statement") filed with the Commission and is incorporated by reference to the pages listed below into this Form 10-K Annual Report, provided, that neither the report on executive compensation nor the performance graph included in the Registrant's definitive proxy statement shall be deemed to be incorporated herein by reference. Page 18 PART III (continued) ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Discussion located at pages 4-5 of 2001 Proxy Statement. See also Part I - "Executive Officers of the Registrant", beginning on page 16 of this Form 10-K. No facts exist which would require disclosure under Item 405 of Regulation S-K. ITEM 11 - EXECUTIVE COMPENSATION Discussion located at pages 5-8 of 2001 Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Discussion located at pages 1-3 of 2001 Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Discussion located at page 9 of 2001 Proxy Statement. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. (1) Financial Statements The following consolidated financial statements of the Registrant appear in the 2000 Annual Report to Shareholders, Exhibit 13, and are specifically incorporated by reference under Item 8 of this Form 10-K: Consolidated Statements of Condition as of December 31, 2000 and 1999 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to the Consolidated Financial Statements Report of Independent Auditors (2) Financial Statement Schedules Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements. (3) Exhibits Reference is made to the Exhibit Index which is found on page 21 of this Form 10-K. B. Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the year ended December 31, 2000. Page 19 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO VALLEY BANC CORP. Date: March 30, 2001 By /s/James L. Dailey ----------------------------- James L. Dailey, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 30, 2001 by the following persons on behalf of the Registrant and in the capacities indicated. Name Capacity ---- -------- /s/James L. Dailey Chairman of the Board - ----------------------------- James L. Dailey /s/Jeffrey E. Smith President, Chief Executive Officer - ----------------------------- and Director Jeffrey E. Smith /s/Lannes C. Williamson Director - ----------------------------- Lannes C. Williamson /s/Phil A. Bowman Director - ----------------------------- Phil A. Bowman /s/W. Lowell Call Director - ----------------------------- W. Lowell Call /s/Robert H. Eastman Director - ----------------------------- Robert H. Eastman /s/Merrill L. Evans Director - ----------------------------- Merrill L. Evans /s/Warren F. Sheets Director - ----------------------------- Warren F. Sheets /s/Thomas E. Wiseman Director - ----------------------------- Thomas E. Wiseman Page 20 EXHIBIT INDEX The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table: Exhibit Number Exhibit Description 3a Amended Articles of Ohio Valley Banc Corp. (as filed with the Ohio Secretary of State on August 21, 1992) are incorporated herein by reference to Form 10-K filed for the fiscal year ending December 31, 1997 [Exhibit 3a] filed March 31, 1998. 3b Code of Regulations of the Registrant are incorporated herein by reference to Form 8-K (File # 2-71309) [Exhibit 3b] filed November 6, 1992. 10 Summary of Deferred Compensation Plan for Directors and Executive Officers is incorporated herein by reference to Form 10-K filed for the fiscal year ending December 31, 1997. 11 Statement regarding computation of per share earnings (included in Note A of the notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.) 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000. [Exhibit is being filed herewith] (Not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K.) 21 Subsidiaries of the Registrant [Exhibit is being filed herewith.] 23 Consent of Independent Accountant - Crowe, Chizek and Company LLP.[Exhibit is being filed herewith.] Page 21 EX-13 2 0002.txt ANNUAL REPORT TO SHAREHOLDERS >MESSAGE FROM MANAGEMENT During the course of 2000 your company attained record earnings for the 8th consecutive year, launched ovbc.com, opened a SuperBank, and relocated a Loan Central office. OVBC attained record net income for the 8th consecutive year at $4.4 million, an increase of 2.5%. Net income per share of $1.25 also represented an increase of 2.5%. Cash dividends per share for 2000 totaled $.59, an 11.3% increase from the $.53 per share paid in 1999. Much was accomplished during the past year as you will read about in the "Year in Review." The most exciting was the ovbc.com Web portal and NetTeller Internet banking. We are no longer bound by bricks and mortar nor any one geographical area. In fact, banking is now in the age of clicks and mortar. OVBC is constantly growing; however, we never forget the ones who built the foundation for this growth. During the past year we lost two long-time members of the OVBC family, Director Frank Mills and OVB Officer Larry Lee. These two individuals were very different, yet they worked toward a common goal, success for your company. If you love the company you work for, it makes sense that you want to help it succeed. Even though Dr. Keith Brandeberry and Art Hartley, Sr. retired from the Board of Directors in 2000, they now actively serve as consultants on our Directors Emeritus Advisory Board. This dedication has been demonstrated many times over the course of the last year, not only by our employees, but also by our shareholders and customers. Thank you for your support in 2000 and your continued commitment during 2001. Sincerely, James L. Dailey Chairman of the Board Jeffrey E. Smith President and Chief Executive Officer >THE YEAR IN REVIEW During the year 2000, your company focused on a single, yet formidable task...shrinking the world and expanding the service. Innovative solutions such as NetTeller Internet banking, online Bill Pay, the ovbc.com Web portal, and Bounce Protection took shape during the past year. These initiatives were designed to enable our customers to do more, do it when they want, and from where they want. "By year end, only six months after its debut, over two thousand OVB customers had already taken advantage of the Bank's NetTeller real-time account access, making over 102 thousand transactions online," said Katrinka Hart, senior vice president, Retail Bank Group. Web-based Cash Management and the Merchant Marketplace Storefront were also introduced in 2000. As of December 31, 2000, over 870 consumers from three countries were active members of ovbc.com. "Ohio Valley Bank is now in the position to help our business customers establish a global presence on the Internet," said David Shaffer, senior vice president, Commercial Bank Group. "We used the past year to strengthen and expand relationships which benefit the Bank's use of technology," said Sandy Edwards, senior vice president, Financial Bank Group. Self-service products such as Business Cash Management, NetTeller and Bill Pay have empowered change. Changing the way we serve our customers was not limited to Ohio Valley Bank. This idea quickly spread through the entire Banc Corp. Loan Central brought this vision to life in its Jackson (OH) market area. "In Jackson, expanding service meant improving the location to make it more convenient for customers," said Cherie Barr, president of Loan Central, Inc. Soon after Jackson's famous Apple Festival, Loan Central was moved to a prime location, just across from the post office, with ample free parking. Management appointments made during last year's Annual Shareholders' Meeting deepened your company's talent pool to achieve this vision. Jeff Smith was elected to the position of Chief Executive Officer of Ohio Valley Bank. Rich Mahan was elected to the position of secretary of your company and Larry Miller to the role of treasurer. Two new OVB senior vice presidents, Sandy Edwards and David Shaffer, were placed into key roles, leading the Financial and Commercial Bank Groups, respectively. Judy Hall was promoted to assistant vice president. Two new officers, Marilyn Kearns and Kim Williams, were designated within the Bank. Just a week after these appointments were announced, Ohio Valley Bank opened a new SuperBank inside the 29th Street Wal-Mart in Huntington, W.Va. "These in-store banks have steadily grown in popularity due to the simple fact that the SuperBanks are open when our competitors are not," said Mario Liberatore, senior vice president, West Virginia Bank Group. OVB officers are respected in their field by their peers. In May, President and CEO Jeff Smith was appointed to the Federal Reserve's Community Bank Advisory Council. The Council was created to help inform the Cleveland Fed about issues of interest and concern to community and independent bankers in the Fourth Federal Reserve District. In October, Vice President Patty Davis was appointed to the Jack Henry & Associates national Users Group Board and elected secretary of the group, which represents hundreds of banks nationwide and directs the future of banking technology. "In addition, many upper level managers instructed bank-related courses through the OVBC Continuing Education Program. The first graduates of this program received their diplomas in 2000," said Sue Ann Bostic, senior vice president, Administrative Services group. Change is not only happening at Ohio Valley Bank, but throughout the entire industry. Much of this change is a result of the Gramm-Leach-Bliley (Financial Modernization) Act. Under this new legislation there is vast potential for creating new products and services while remaining an independent community bank. Your company used this new legislation to seize a new business opportunity. On October 5th, OVBC joined forces with the financial companies of four other community banks to purchase a 50% ownership in ProFinance Holdings Corporation. ProFinance was formed to purchase Century Surety Company, a Columbus based insurance underwriter and reinsurance company. In addition to the return on our investment, we will assist the company to expand into new areas by offering products that could be utilized by our banks in the future. As 2001 unfolds, it is clear that Ohio Valley Bank is part of a new breed of community banks that are positioned to reach the entire globe. FINANCIAL HIGHLIGHTS 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- NET INCOME ($000) $ 4,400 $ 4,292 $ 4,130 $ 3,782 $ 3,349 TOTAL ASSETS ($000) $561,658 $522,057 $447,448 $379,088 $355,986 INCOME PER SHARE $ 1.25 $ 1.22 $ 1.18 $ 1.10 $ 1.00 DIVIDENDS PER SHARE $ .59 $ .53 $ .44 $ .42 $ .40 Description of Business - ----------------------- Ohio Valley Banc Corp commenced operations on October 23, 1992 as a one-bank holding company with The Ohio Valley Bank Company being the wholly-owned subsidiary. The Company's headquarters are located at 420 Third Avenue in Gallipolis, Ohio. The Ohio Valley Bank Company was organized on September 24, 1872. The Bank is insured under the Federal Deposit Insurance Act and is chartered under the banking laws of the State of Ohio. The company currently operates sixteen offices in Ohio and West Virginia. In April 1996, the Banc Corp opened a consumer finance company operating under the name of Loan Central, Inc. with offices in Gallipolis, South Point, Jackson and Waverly, Ohio. Form 10-K - --------- A copy of the Company's annual report on Form 10-K, as filed with the Securities and Exchange Commission, will be forwarded without charge to any stockholder upon written request to: Ohio Valley Banc Corp, Attention: E. Richard Mahan, Secretary, 420 Third Avenue, P.O. Box 240, Gallipolis, OH 45631. OHIO VALLEY BANC CORP. DIRECTORS Phil A. Bowman Warren F. Sheets Mining Consultant and Developer Attorney W. Lowell Call Jeffrey E. Smith Vice President of Sausage Production, President and Chief Executive Officer, Bob Evans Farms, Inc. Ohio Valley Banc Corp. James L. Dailey Lannes C. Williamson Chairman of the Board, President, Ohio Valley Banc Corp. L. Williamson Pallets, Inc. Robert H. Eastman Thomas E. Wiseman President, President, Ohio Valley Supermarkets, Inc. The Wiseman Agency, Inc. Merrill L. Evans Farmer, President, Evans Enterprises, Inc. OHIO VALLEY BANC CORP. OFFICERS Jeffrey E. Smith Sandra L. Edwards President and Vice President Chief Executive Officer E. Richard Mahan David L. Shaffer Senior Vice President and Vice President Secretary Larry E. Miller, II Cherie A. Barr Senior Vice President and Vice President Treasurer Sue Ann Bostic Katrinka V. Hart Vice President Vice President Harold A. Howe Mario Liberatore Vice President Vice President Cindy H. Johnston Paula W. Salisbury Assistant Secretary Assistant Secretary LOAN CENTRAL OFFICERS Jeffrey E. Smith Renae L. Hughes Chairman of the Board Manager, Jackson Office Cherie A. Barr T. Joe Wilson President Manager, South Point Office Timothy R. Brumfield Joseph I. Jones Secretary and Manager, Manager, Waverly Office Gallipolis Office OHIO VALLEY BANK COMPANY DIRECTORS Phil A. Bowman Lannes C. Williamson W. Lowell Call Steven B. Chapman CPA James L. Dailey Robert H. Eastman Merrill L. Evans Thomas E. Wiseman Harold A. Howe Warren F. Sheets President, Ohio Valley Financial Services Jeffrey E. Smith Wendell B. Thomas Retired Bank Executive DIRECTORS EMERITUS Morris E. Haskins Charles C. Lanham Retired Bank Executive Governmental Relations C. Leon Saunders Keith R. Brandeberry Retired Bank Executive Physician Art E. Hartley, Sr. Chairman of the Board, City Ice and Fuel, Inc. OHIO VALLEY BANK COMPANY OFFICERS Jeffrey E. Smith Katrinka V. Hart President and Senior Vice President, Chief Executive Officer Retail Bank Group E. Richard Mahan David L. Shaffer Executive Vice President and Senior Vice President, Secretary Commercial Bank Group Larry E. Miller, II Sue Ann Bostic Executive Vice President and Senior Vice President, Treasurer Administrative Services Group Patrick H. Tackett Mario P. Liberatore Vice President, Senior Vice President, Western Division Branch Administrator West Virginia Bank Group Patricia L. Davis Sandra L. Edwards Vice President, Senior Vice President, Research & Technical Applications Financial Bank Group Hugh H. Graham, Jr. Bryan W. Martin Vice President, Vice President, Superbank Division Facilities and Technical Services Jennifer L. Osborne Richard D. Scott Vice President, Vice President, Retail Lending Trust Judy K. Hall Tom R. Shepherd Assistant Vice President, Vice President, Training and Educational Development Marketing Rick A. Swain Molly K. Tarbett Assistant Vice President, Vice President, Region Manager Pike County Retail Operations Darren R. Blake Robert T. Hennesy Assistant Vice President, Assistant Vice President, Network Administrator Retail Indirect Lending Manager Phyllis P. Wilcoxon Philip E. Miller Assistant Vice President, Assistant Vice President, Shareholder Relations Region Manager Franklin County Scott W. Shockey Timothy V. Stevens Assistant Vice President, Assistant Vice President, Comptroller Region Manager Cabell County Kyla Carpenter Kimberly R. Williams Assistant Cashier, Assistant Cashier, Marketing Officer EDP Officer Brenda G. Henson Keith A. Johnson Assistant Cashier, Assistant Cashier, Manager Customer Service Collections Manager Dians L. Parks Christopher S. Petro Assistant Cashier, Assistant Cashier, Internal Auditor Regulatory Reporting Manager Linda L. Plymale Richard P. Speirs Assistant Cashier, Assistant Cashier, Operations Officer Maintenance Technical Supervisor Stephanie L. Stover Cindy H. Johnston Assistant Cashier Assistant Secretary Retail Lending Operations Manager Marilyn Kearns Paula W. Salisbury Assistant Cashier, Assistant Secretary Director of Human Resources WEST VIRGINIA ADVISORY BOARD Anna P. Barnitz Richard L. Handley Business Manager/Treasurer Educator, Bob's Market and Greenhouses, Inc. Mason County Board of Education R. Raymond Yauger Gregory K. Hartley President, President, Yauger Farm Supply, Inc. City Ice and Fuel, Inc. Charles C. Lanham Mario P. Liberatore Advisory Board Chairman and Senior Vice President W.V. Bank Group John C. Musgrave Trenton M. Stover West Virginia Lottery Director CPA/Owner, Trenton Stover CPA Lannes C. Williamson SELECTED FINANCIAL DATA Years Ended December 31 SUMMARY OF OPERATIONS: 2000 1999 1998 1997 1996 (dollars in thousands, except per share data) Total interest income $ 45,195 $ 40,006 $ 35,191 $ 31,453 $ 28,252 Total interest expense 24,065 18,837 15,691 14,517 12,856 Net interest income 21,130 21,169 19,500 16,936 15,396 Provision for loan losses 1,890 2,303 2,295 1,245 1,328 Total other income 3,858 3,132 2,760 1,860 1,419 Total other expenses 16,978 16,060 14,201 12,293 10,738 Income before income taxes 6,120 5,938 5,764 5,258 4,749 Income taxes 1,720 1,646 1,634 1,476 1,400 Net income 4,400 4,292 4,130 3,782 3,349 PER SHARE DATA(1): Net income per share $ 1.25 $ 1.22 $ 1.18 $ 1.10 $ 1.00 Cash dividends per share $ .59 $ .53 $ .44 $ .42 $ .40 Weighted average number of shares outstanding 3,516,205 3,530,203 3,502,366 3,426,600 3,341,274 AVERAGE BALANCE SUMMARY: Total loans $432,165 $382,353 $305,392 $271,535 $248,833 Securities (2) 74,733 73,783 74,478 73,303 76,907 Deposits 428,874 376,050 319,493 304,296 290,790 Shareholders' equity 42,773 41,730 38,639 34,449 30,958 Total assets 544,306 488,632 408,482 369,552 342,588 PERIOD END BALANCES: Total loans $448,303 $411,158 $347,130 $280,267 $264,660 Securities (2) 76,402 72,186 72,419 76,711 71,135 Deposits 432,371 405,331 327,317 306,037 294,325 Shareholders' equity 44,492 42,708 40,680 36,834 32,874 Total assets 561,658 522,057 447,448 379,088 355,986 KEY RATIOS: Return on average assets .81% .88% 1.01% 1.02% .98% Return on average equity 10.29% 10.29% 10.69% 10.98% 10.82% Dividend payout ratio 47.14% 43.73% 37.13% 37.81% 39.53% Average equity to average assets 7.86% 8.54% 9.46% 9.32% 9.04% (1) Restated for stock splits as appropriate. (2) Securities include interest-bearing balances with banks. CONSOLIDATED STATEMENTS OF CONDITION As of December 31 2000 1999 ----------------- ---- ---- (dollars in thousands) ASSETS Cash and cash equivalents 14,569 19,000 Interest-bearing balances with banks 816 806 Securities available-for-sale 59,819 55,371 Securities held-to-maturity 15,767 16,009 (estimated fair value: 2000-$16,111, 1999-$15,892) Total Loans 448,303 411,158 Less: Allowance for loan losses (5,385) (5,055) -------- -------- Net Loans 442,918 406,103 Premises and equipment, net 9,285 9,888 Accrued income receivable 4,104 3,298 Intangible assets, net 1,396 1,412 Other assets 12,984 10,170 -------- -------- Total assets $561,658 $522,057 ======== ======== LIABILITIES Noninterest-bearing deposits $ 47,661 $ 46,444 Interest-bearing deposits 384,710 358,887 -------- -------- Total Deposits 432,371 405,331 Securities sold under agreements to repurchase 18,345 16,788 Other borrowed funds 53,622 51,231 Obligated mandatorily redeemable capital securities of subsidiary trust 5,000 Accrued liabilities 7,828 5,999 -------- -------- Total liabilities 517,166 479,349 -------- -------- SHAREHOLDERS' EQUITY Common stock ($1 stated value: 10,000,000 shares authorized; 2000 - 3,559,770 shares issued, 1999 - 3,548,572 shares issued) 3,560 3,549 Additional paid-in-capital 28,760 28,454 Retained earnings 13,817 11,491 Accumulated other comprehensive income (loss) 436 (597) Treasury stock at cost (2000 - 72,489 shares, 1999 - 5,589 shares) (2,081) (189) -------- -------- Total shareholders' equity 44,492 42,708 -------- -------- Total liabilities and shareholders' equity $561,658 $522,057 ======== ======== See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31 2000 1999 1998 ------------------------------- ---- ---- ---- (dollars in thousands, except per share data) Interest and dividend income: Loans, including fees $40,470 $35,539 $30,550 Securities: Taxable 3,377 3,200 3,212 Tax exempt 793 826 794 Dividends 313 290 245 Other interest 242 151 390 ------- ------- ------- 45,195 40,006 35,191 Interest expense: Deposits 20,367 15,602 13,489 Repurchase agreements 859 510 685 Other borrowed funds 2,671 2,725 1,517 Obligated mandatorily redeemable capital securities of subsidiary trust 168 ------- ------- ------- 24,065 18,837 15,691 ------- ------- ------- Net interest income 21,130 21,169 19,500 Provision for loan losses 1,890 2,303 2,295 ------- ------- ------- Net interest income after provision for loan losses 19,240 18,866 17,205 ------- ------- ------- Noninterest income: Service charges on deposit accounts 2,016 1,237 969 Trust fees 217 225 212 Income from bank owned insurance 482 407 379 Net gain on sale of available-for-sale securities 317 442 Other 1,143 946 758 ------- ------- ------- 3,858 3,132 2,760 ------- ------- ------- Noninterest expense: Salaries and employee benefits 9,300 9,190 8,089 Occupancy expense 1,337 1,041 764 Furniture and equipment expense 1,253 1,115 904 Corporation franchise tax 385 356 368 Data processing expense 480 316 346 Other 4,223 4,042 3,730 ------- ------- ------- 16,978 16,060 14,201 ------- ------- ------- Income before income taxes 6,120 5,938 5,764 Provision for income taxes 1,720 1,646 1,634 ------- ------- ------- NET INCOME $ 4,400 $ 4,292 $ 4,130 ======= ======= ======= Earnings per share $ 1.25 $ 1.22 $ 1.18 ======= ======= ======= See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998 Accumulated Other Total Common Retained Comprehensive Treasury Shareholders' (dollars in thousands, except per Stock Surplus Earnings Income Stock Equity share data) ----- ------- -------- ------ ----- ------ BALANCES AT JANUARY 1, 1998 $ 1,876 $26,275 $ 8,113 $ 570 $36,834 Comprehensive income: Net income 4,130 4,130 Net change in unrealized gain on available-for-sale securities (103) (103) ------- Total comprehensive income 4,027 Common Stock split, 50% 906 (906) Cash paid in lieu of fractional shares in stock split (7) (7) Common Stock issued, 5,450 shares 5 223 228 Common Stock issued through dividend reinvestment, 31,196 shares 31 1,100 1,131 Cash dividends, $.44 per share (1,533) (1,533) ------- ------- ------- ------- ------- ------- BALANCES AT DECEMBER 31, 1998 2,818 27,598 9,797 467 40,680 Comprehensive income: Net income 4,292 4,292 Cumulative effect of securities transfers, net 167 167 Net change in unrealized gain on available-for-sale securities (1,231) (1,231) ------- Total comprehensive income 3,228 Common Stock split, 25% 706 (706) Cash paid in lieu of fractional shares in stock split (15) (15) Common Stock issued, 7,500 shares 8 241 249 Common Stock issued through dividend reinvestment, 16,756 shares 17 615 632 Cash dividends, $.53 per share (1,877) (1,877) Shares acquired for treasury, 5,589 shares $ (189) (189) ------- ------- ------- ------- -------- ------- BALANCES AT DECEMBER 31, 1999 3,549 28,454 11,491 (597) (189) 42,708 Comprehensive income: Net income 4,400 4,400 Net change in unrealized gain on available-for-sale securities 1,033 1,033 ------- Total comprehensive income 5,433 Common Stock issued through dividend reinvestment, 11,198 shares 11 306 317 Cash dividends, $.59 per share (2,074) (2,074) Shares acquired for treasury, 66,900 shares $(1,892) (1,892) ------- ------- ------- ------- ------- ------- BALANCES AT DECEMBER 31, 2000 $ 3,560 $28,760 $13,817 $ 436 $(2,081) $44,492 ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2000 1999 1998 ------------------------------- ---- ---- ---- (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,400 $ 4,292 $ 4,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,447 1,157 947 Net amortization and accretion of securities 99 171 137 Amortization of intangible assets 129 30 Deferred tax benefit (292) (262) (384) Provision for loan losses 1,890 2,303 2,295 Contribution of common stock to ESOP 249 228 FHLB stock dividend (318) (280) (190) Net gain on sale of available-for-sale securities (317) (442) Change in accrued income receivable (806) (575) (220) Change in accrued liabilities 1,829 1,357 735 Change in other assets (2,262) (1,873) 568 ------- ------- ------- Net cash provided by operating activities 6,116 6,252 7,804 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 6,749 10,587 9,300 Purchases of securities available-for-sale (9,349) (13,438) (2,917) Proceeds from maturities of securities held-to-maturity 2,628 2,841 12,850 Purchases of securities held-to-maturity (2,450) (1,347) (18,942) Proceeds from sale of equity securities 323 1,075 Change in interest-bearing deposits in other banks (10) (11) 3,128 Net increase in loans (38,705) (65,553) (68,271) Purchases of premises and equipment (844) (2,686) (1,981) Purchases of insurance contracts (905) (460) (580) ------- ------- ------- Net cash used in investing activities (42,886) (69,744) (66,338) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in deposits 27,040 58,653 21,280 Cash and cash equivalents received in assumption of deposits, net of assets acquired 19,361 Cash dividends (2,074) (1,877) (1,533) Cash paid in lieu of fractional shares in stock split (15) (7) Proceeds from issuance of common stock 317 632 1,131 Purchases of treasury stock (1,892) (189) Change in securities sold under agreements to repurchase 1,557 (2,278) 6,235 Proceeds from obligated mandatorily redeemable capital securities of subsidiary trust 5,000 Proceeds from long-term borrowings 30,250 8,500 35,164 Repayment of long-term borrowings (25,629) (9,818) (8,498) Change in other short-term borrowings (2,230) (3,194) 9,598 ------- ------- ------- Net cash used in financing activities 32,339 69,775 63,370 ------- ------- ------- CASH AND CASH EQUIVALENTS: Change in cash and cash equivalents (4,431) 6,283 4,836 Cash and cash equivalents at beginning of year 19,000 12,717 7,881 ------- ------- ------- Cash and cash equivalents at end of year $14,569 $19,000 $12,717 ======= ======= ======= CASH PAID DURING THE YEAR FOR: Interest $22,456 $17,496 $15,578 Income taxes 1,655 2,075 1,715
See accompanying notes to consolidated financial statements Note A - Summary of Significant Accounting Policies Unless otherwise indicated, amounts are in thousands, except per share data. Principles of Consolidation: The consolidated financial statements include the accounts of the Ohio Valley Banc Corp. (the Company) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the Bank) and Loan Central, a consumer finance company. All significant intercompany balances and transactions have been eliminated. Industry Segment Information: The Company is engaged in the business of commercial and retail banking and trust services, with operations conducted through 20 offices located in central and southeastern Ohio as well as western West Virginia. These communities are the source of substantially all of the Company's deposit, loan and trust services. 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. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas involving the use of management's estimates and assumptions that are more susceptible to change in the near term involve the allowance for loan losses, the fair value of certain securities, the fair value of financial instruments and the determination and carrying value of impaired loans. Cash and Cash Equivalents: 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. Securities: The Company classifies securities into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Securities classified as available-for-sale include marketable equity securities and other securities that management intends to sell or that could be sold for liquidity, investment management or similar reasons even if there is not a present intention of such a sale. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. Other securities such as Federal Home Loan Bank stock are carried at cost. Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method. Gains and losses are recognized upon the sale of specific identified securities on the completed transaction basis. Securities are written down to fair value when a decline in fair value is not temporary. Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days. Payments received on such loans are reported as principal reductions. Allowance for Loan Losses: Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases to the allowance are recorded by a provision for loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are probable based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral value, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem situations, the entire allowance is available for any charge-offs that occur. A loan is charged off by management as a loss when deemed uncollectable, although collection efforts continue and future recoveries may occur. Loans are considered impaired if full principal or interest payments are not anticipated. Impaired loans are carried at the present value of expected cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, credit card and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often also considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectable. This typically occurs when the loan is 120 or more days past due. Summary of Significant Accounting Policies (continued) Concentrations of Credit Risk: The Company, through its subsidiaries, grants residential, consumer and commercial loans to customers located primarily in the southeastern Ohio and western West Virginia areas. The following represents the composition of the loan portfolio at December 31, 2000: % of Total Loans ---------------- Real Estate loans ............................ 46.78% Commercial and industrial loans............... 31.19% Consumer loans ............................... 21.86% All other loans .............................. .17% ------- 100.00% ======= Approximately 6.25% of total loans are unsecured. The Bank, in the normal course of its operations, conducts business with correspondent financial institutions. Balances in correspondent accounts, investments in federal funds, certificates of deposit and other short-term securities are closely monitored to ensure that prudent levels of credit and liquidity risks are maintained. At December 31, 2000, the Bank's primary correspondent balance was $6,952 at the Federal Reserve Bank, Cleveland, Ohio. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the declining balance and straight-line methods over the estimated useful lives of the various assets. Maintenance and repairs are expensed and major improvements are capitalized. Other Real Estate: Real estate acquired through foreclosure or deed-in-lieu of foreclosure is included in other assets. Such real estate is carried at the lower of investment in the loan or estimated fair value of the property less estimated selling costs. Any reduction to fair value at the time of acquisition is accounted for as a loan charge-off. Any subsequent reduction in fair value is recorded as a loss on other assets. Costs incurred to carry other real estate are charged to expense. Other real estate owned totaled $34 at December 31, 2000 and $30 at December 31, 1999. Transfers of loans to other real estate were $139 in 2000 and $163 in 1998. There were no transfers of loans to other real estate in 1999. Long-term Assets: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may no be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts. Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. Per Share Amounts: Earnings per share is based on net income divided by the following weighted average number of shares outstanding during the periods: 3,516,205 for 2000, 3,530,203 for 1999 and 3,502,366 for 1998. The Company had no dilutive securities outstanding for any period presented. Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale which are also recognized as separate components of equity. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Reclassifications: The consolidated financial statements for 1999 and 1998 have been reclassified to conform with the presentation for 2000. Such reclassifications had no effect on the net results of operations. NOTE B - SECURITIES The amortized cost and estimated fair value of securities as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 2000 Cost Gains Losses Value - ----------------- ---- ----- ------ ----- 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 Marketable equity securities 4,467 4,467 ------- ------ ----- ------- Total securities $59,158 $ 721 $ (60) $59,819 ======= ====== ===== ======= Securities Held-to-Maturity --------------------------- Obligations of states and political subdivisions $15,503 $ 383 $ (25) $15,861 Mortgage-backed securities 264 1 (15) 250 ------- ------ ----- ------- Total securities $15,767 $ 384 $ (40) $16,111 ======= ====== ===== ======= Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value - ----------------- ---- ----- ------ ----- Securities Available-for-Sale ----------------------------- U.S. Treasury securities $ 7,490 $ 21 $ (1) $ 7,510 U.S. Government agency securities 42,328 1 (807) 41,522 Mortgage-backed securities 2,307 (118) 2,189 Marketable equity securities 4,150 4,150 ------- ------ ----- ------- Total securities $56,275 $ 22 $(926) $55,371 ======= ====== ===== ======= Securities Held-to-Maturity --------------------------- Obligations of states and political subdivisions $15,690 $ 151 $(247) 15,594 Mortgage-backed securities 319 1 (22) 298 ------- ------ ----- ------- Total securities $16,009 $ 152 $(269) $15,892 ======= ====== ===== =======
On April 1, 1999, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 allows the company a one time reclassification of securities held-to-maturity to classification as available-for-sale or trading. The Company transferred securities with a par value of $27,500 previously classified as held-to-maturity to available-for-sale upon adoption. The unrealized gain, net of tax, on the securities transferred totaled $167. The Company has no derivative or hedging activity covered by SFAS No. 133. Securities with a carrying value of approximately $63,488 at December 31, 2000 and $58,984 at December 31, 1999 were pledged to secure public deposits and for other purposes as required or permitted by law. The amortized cost and estimated fair value of debt securities at December 31, 2000, 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 Debt Securities: Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 8,524 $ 8,543 $ 2,013 $ 2,019 Due in one to five years 44,102 44,761 7,012 7,203 Due in five to ten years 3,525 3,606 Due after ten years 2,953 3,033 Mortgage-backed securities 2,065 2,048 264 250 ------- ------- ------- ------- Total debt securities $54,691 $55,352 $15,767 $16,111 ======= ======= ======= ======= There were no sales of debt and equity securities during 2000. Proceeds from the sale of equity securities in 1999 were $323 with gross gains of $317 realized. Proceeds from the sale of equity securities during 1998 were $1,075 with gross gains of $459 and gross losses of $17 realized. NOTE C - LOANS Loans are comprised of the following at December 31: 2000 1999 ---- ---- Real estate loans $209,724 $201,625 Commercial and industrial loans 139,826 119,585 Consumer loans 98,013 88,942 All other loans 740 1,006 -------- -------- Total Loans $448,303 $411,158 ======== ======== NOTE D - ALLOWANCE FOR LOAN LOSSES Following is an analysis of changes in the allowance for loan losses for years ended December 31: 2000 1999 1998 ---- ---- ---- Balance, beginning of year $5,055 $4,277 $3,390 Loans charged-off: Real estate 92 41 110 Commercial 61 454 130 Consumer 1,642 1,298 1,433 ------ ------ ------ Total loans charged-off 1,795 1,793 1,673 Recoveries of loans: Real estate 4 13 40 Commercial 23 47 Consumer 231 232 178 ------ ------ ------ Total recoveries of loans 235 268 265 Net loan charge-offs (1,560) (1,525) (1,408) Provision charged to operations 1,890 2,303 2,295 ------ ------ ------ Balance, end of year $5,385 $5,055 $4,277 ====== ====== ====== Information regarding impaired loans is as follows: 2000 1999 ---- ---- Balance of impaired loans $1,233 $1,413 ====== ====== Portion of impaired loan balance for which an allowance for credit losses is allocated $1,233 $1,413 ====== ====== Portion of allowance for loan losses allocated to the impaired loan balance $ 530 $ 600 ====== ====== Average investment in impaired loans for the year $1,266 $1,570 ====== ====== Interest on impaired loans was not material for years ending 2000, 1999 or 1998. NOTE E - PREMISES AND EQUIPMENT Following is a summary of premises and equipment at December 31: 2000 1999 ---- ---- Land $ 1,376 $ 1,375 Buildings 8,550 8,435 Furniture and equipment 7,512 6,784 ------- ------- 17,438 16,594 Less accumulated depreciation 8,153 6,706 ------- ------- Total Premises and Equipment $ 9,285 $ 9,888 ======= ======= The following is a summary of the future minimum lease payments for facilities leased by the Company. Lease payments were $344 in 2000 and $255 in 1999. 2001 $ 328 2002 316 2003 277 2004 174 2005 121 Thereafter 222 ------ $1,438 ====== NOTE F - DEPOSITS Following is a summary of interest-bearing deposits at December 31: 2000 1999 ---- ---- NOW accounts $ 80,336 $ 74,447 Savings and Money Market 36,598 42,095 Time: IRA accounts 34,683 34,938 Certificates of Deposit: In denominations under $100,000 145,121 136,824 In denominations of $100,000 or more 87,972 70,583 -------- -------- Total time deposits 267,776 242,345 -------- -------- Total interest-bearing deposits $384,710 $358,887 ======== ======== Following is a summary of total time deposits by remaining maturities at December 31: 2000 ------ Within one year $193,424 From one to two years 46,467 From two to three years 22,576 From three to four years 2,064 From four to five years 1,813 Thereafter 1,432 -------- Totals $267,776 ======== NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Following is a summary of securities sold under agreements to repurchase at December 31: 2000 1999 ---- ---- Balance outstanding at period end $18,345 $16,788 ------- ------- Weighted average interest rate at period end 5.28% 4.54% ------- ------- Average amount outstanding during the year $17,606 $13,961 ------- ------- Approximate weighted average interest rate during the year 4.88% 3.65% ------- ------- Maximum amount outstanding as of any month end $22,690 $16,788 ------- ------- Securities underlying these agreements at year-end were as follows: Carrying value of securities $39,177 $36,326 ------- ------- Fair Value $39,635 $35,793 ------- ------- NOTE H - OTHER BORROWED FUNDS Other borrowed funds at December 31, 2000 and 1999 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 --------------- ---------------- --------- ------- 2000 $44,753 $ 5,594 $ 3,275 $53,622 1999 $38,746 $ 3,985 $ 8,500 $51,231 Pursuant to collateral agreements with the FHLB, advances are secured by certain qualifying first mortgage loans and by FHLB stock which total $67,130 and $4,467 at December 31, 2000. Fixed rate FHLB advances mature through 2010 and have interest rates ranging from 4.88% to 7.08%. Promissory notes, issued primarily by the parent company, have fixed rates of 6.50% to 7.25% and are due at various dates through a final maturity date of May 29, 2002. Scheduled principal payments over the next five years: FHLB borrowings Promissory notes FRB Notes Total --------------- ---------------- --------- ----- 2001 $16,487 $5,589 $3,275 $25,351 2002 8,765 5 8,770 2003 4,581 4,581 2004 675 675 2005 121 121 Thereafter 14,124 14,124 ------- ------ ------ ------- $44,753 $5,594 $3,275 $53,622 ======= ====== ====== ======= Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits required by law totaled $33,100 at December 31, 2000 and $24,000 at December 31, 1999. Various investment securities from the Bank used to collateralize FRB notes totaled $9,165 at December 31, 2000 and $9,225 at December 31, 1999. NOTE I - OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY TRUST On September 7, 2000 the Company completed the issuance of $5,000 at 10.60% obligated mandatorily redeemable capital securities of a subsidiary trust (Trust Preferred Securities) through a newly formed, wholly-owned subsidiary, Ohio Valley Statutory Trust I (the "Trust Issuer"). The Trust Issuer invested the total proceeds from the sale of trust preferred securities in a long-term subordinated debenture issued by the parent company with a fixed rate of 10.60% and a maturity date of September 7, 2030. The parent company used the net proceeds from the sale of the subordinated debenture to help continue the Company's stock repurchases and provide additional capital to the Bank to support growth. The trust preferred securities were unsecured at December 31, 2000. A description of the trust preferred securities currently outstanding at December 31, 2000 is presented below: Issuing Date of Interest Maturity Principal Entity Issuance Rate Date Balance - ------------------- ----------------- -------- ----------------- --------- Ohio Valley September 7, 2000 10.60% September 7, 2030 $5,000 Statutory Trust I NOTE J - INCOME TAXES The provision for federal income taxes consists of the following components: 2000 1999 1998 ---- ---- ---- Current tax expense $2,012 $1,908 $2,018 Deferred tax expense (benefit) (292) (262) (384) ------ ------ ------ Total federal income taxes $1,720 $1,646 $1,634 ====== ====== ====== The sources of gross deferred tax assets and gross deferred tax liabilities at December 31: 2000 1999 ---- ---- Items giving rise to deferred tax assets: Allowance for loan losses in excess of tax reserve $1,486 $1,334 Deferred compensation 502 401 Unrealized loss on securities available-for-sale 307 Other 126 90 Items giving rise to deferred tax liabilities: Investment accretion (34) (25) Depreciation (56) (124) FHLB stock dividends (439) (333) Unrealized gain on securities available-for-sale (225) Lease receivables (46) Other (4) (8) ------ ------ Net deferred tax asset $1,356 $1,596 ====== ====== The difference between the financial statement tax provision and amounts computed by applying the statutory federal income tax rate of 34% to income before taxes is as follows: 2000 1999 1998 ---- ---- ---- Statutory tax $2,081 $2,019 $1,960 Effect of nontaxable interest and dividends (278) (297) (298) Nondeductible interest expense 49 46 46 Insurance contracts (139) (117) (110) Other items 7 (5) 36 ------ ------ ------ Total federal income taxes $1,720 $1,646 $1,634 ====== ====== ====== There were no taxes attributable to gains on sale of securities in 2000. Taxes attributable to gains on sale of securities totaled $108 in 1999 and $150 in 1998. NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. Following is a summary of such commitments at December 31: Commitments to extend credit 2000 1999 ----- ----- Fixed rate $ 811 $ 3,033 Variable rate 45,418 37,721 Standby letters of credit 5,906 9,072 The interest rate on fixed rate commitments ranged from 7.375% to 17.90% at December 31, 2000. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. There are various contingent liabilities that are not reflected in the financial statements, including claims and legal action arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations. The bank subsidiary of the Company is required to maintain average reserve balances with the Federal Reserve Bank or as cash in the vault. The amount of those reserve balances for the year ended December 31, 2000, was approximately $6,088. NOTE L - RELATED PARTY TRANSACTIONS Certain directors, executive officers and companies in which they are affiliated were loan customers during 2000. A summary of activity on these borrower relationships with aggregate debt greater than $60 is as follows: Total loans at January 1, 2000 $14,457 New loans 5,974 Repayments (5,903) Other changes (1,592) ------- Total loans at December 31, 2000 $12,936 ======= Other changes include adjustment for loans applicable to one reporting period that are excludable from the other reporting period. In addition, certain directors, executive officers and companies in which they are affiliated were recipients of promissory notes issued by the parent company in the amount of $2,250. NOTE M - EMPLOYEE BENEFITS The Bank has a profit-sharing plan for the benefit of its employees and their beneficiaries. Contributions to the plan are determined by the Board of Directors. Contributions charged to expense were $146, $131 and $111 for 2000, 1999 and 1998. The Company maintains an Employee Stock Ownership Plan (ESOP) covering substantially all of its employees. The Company makes discretionary contributions to the plan which are allocated to plan participants based on relative compensation. The total number of shares held by the Plan, all of which have been allocated to participant accounts were 167,598 and 178,872 at December 31, 2000 and 1999. In addition, the Bank made contributions to its ESOP Trust as follows: Years ended December 31 2000 1999 1998 ---- ---- ---- Number of shares issued 7,500 5,450 ===== ===== ===== Value of stock contributed $ 249 $ 228 Cash contributed $ 293 12 ----- ----- ----- Total charged to expense $ 293 $ 261 $ 228 ===== ===== ===== Life insurance contracts with a cash surrender value of $9,408 have been purchased by the Company, the owner the of policies. The purpose of these contracts was to replace a current group life insurance program for executive officers and implement a supplemental retirement program. The cost of providing the benefits to the participants of the supplemental retirement program is expected to be offset by the earnings on the life insurance contracts. NOTE N - OTHER COMPREHENSIVE INCOME Other comprehensive income components and related taxes for the years ended December 31, are as follow: 2000 1999 1998 Unrealized holding gains (losses) on ---- ---- ---- available-for-sale securities $ 1,565 $(1,548) $ 286 Cumulative effect of securities transferred 253 Less: Reclassification adjustment for gains (losses) later recognized in income 317 442 ------- ------- ------- Net unrealized gain (losses) 1,565 (1,612) (156) Tax effect 532 (548) (53) ------- ------- ------- Other comprehensive income $ 1,033 $(1,064) $(103) ======= ======= ======= NOTE O - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Short-term Investments: For short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities: For securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar instruments. Loans: The fair value of fixed rate loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair market value of commitments is not material at December 31, 2000 or 1999. Deposit Liabilities: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: For other borrowed funds, rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value. For securities sold under agreements to repurchase, carrying value is a reasonable estimate of fair value. Accrued Interest Receivable and Payable: For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value. In addition, other assets and liabilities that are not defined as financial instruments were not included in the disclosures below, such as premises and equipment and life insurance contracts. The estimated fair values of the Company's financial instruments at December 31, are as follows: 2000 1999 ---- ---- Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- Financial assets: Cash and short-term investments $ 15,385 $ 15,385 $ 19,806 $ 19,806 Securities 71,119 71,463 67,230 67,113 FHLB stock 4,467 4,467 4,150 4,150 Loans 442,918 445,730 406,103 410,373 Accrued interest receivable 4,104 4,104 3,298 3,298 Financial liabilities: Deposits (432,371) (435,155) (405,331) (405,386) Securities sold under agreements to repurchase (18,345) (18,345) (16,788) (16,788) Other borrowed funds (53,622) (53,539) (51,231) (50,141) Obligated mandatorily redeemable capital securities of subsidiary trust (5,000) (5,167) Accrued interest payable (6,096) (6,096) (4,487) (4,487) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments , and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE P - REGULATORY MATTERS The Company and Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. At year-end, consolidated actual capital levels (in thousands) and minimum required levels for the Company and Bank were:
Minimum Required To Be Well Minimum Required Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Regulations ------ ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- 2000 Total capital (to risk weighted assets) Consolidated $52,975 12.5% $34,012 8.0% $42,515 10.0% The Ohio Valley Bank Company $48,391 12.4% $31,129 8.0% $38,912 10.0% Tier 1 capital (to risk weighted assets) Consolidated $47,660 11.2% $17,006 4.0% $25,509 6.0% The Ohio Valley Bank Company $43,525 11.2% $15,565 4.0% $23,347 6.0% Tier 1 capital (to average assets) Consolidated $47,660 8.5% $22,488 4.0% $28,110 5.0% The Ohio Valley Bank Company $43,525 7.9% $22,009 4.0% $27,511 5.0% 1999 Total capital (to risk weighted assets) Consolidated $46,622 12.3% $30,238 8.0% $37,797 10.0% The Ohio Valley Bank Company $42,495 11.5% $29,637 8.0% $37,047 10.0% Tier 1 capital (to risk weighted assets) Consolidated $41,893 11.1% $15,119 4.0% $22,678 6.0% The Ohio Valley Bank Company $33,862 9.1% $14,819 4.0% $22,228 6.0% Tier 1 capital (to average assets) Consolidated $41,893 8.1% $20,707 4.0% $25,884 5.0% The Ohio Valley Bank Company $33,862 6.6% $20,377 4.0% $25,471 5.0%
The Company and Bank at year-end 2000 were categorized as well capitalized. Management is not aware of any event or circumstances subsequent to year-end that would change the Company's or Bank's capital structure. Dividends paid by the subsidiaries are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the subsidiaries to the Company is subject to restrictions by regulatory authorities. These restrictions generally limit dividends to the current and prior two years retained earnings. At December 31, 2000, approximately $11,467 of the subsidiaries' retained earnings were available for dividends under these guidelines. In addition to these restrictions, as a practical matter, dividend payments cannot reduce regulatory capital levels below minimum regulatory guidelines. These restrictions do not presently limit the Company from paying dividends at its historical level. NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION Below is condensed financial information of Ohio Valley Banc Corp. In this information, the parent's investment in subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries since acquisition. This information should be read in conjunction with the consolidated financial statements. CONDENSED STATEMENTS OF CONDITION at December 31: Assets 2000 1999 ---- ---- Cash and cash equivalents $ 50 $ 50 Interest-bearing balances with subsidiaries 259 1,060 Investment in subsidiaries 47,045 36,205 Notes receivable - subsidiaries 5,947 9,455 Other assets 2,115 101 ------- ------- Total assets $55,416 $46,871 ======= ======= Liabilities Notes Payable $ 5,576 $ 3,955 Subordinated debentures 5,155 Other liabilities 193 208 ------- ------- Total liabilities 10,924 4,163 ------- ------- Shareholders' Equity Total shareholders' equity 44,492 42,708 ------- ------- Total liabilities and shareholders' equity $55,416 $46,871 ======= ======= CONDENSED STATEMENTS OF INCOME Years ended December 31: 2000 1999 1998 ---- ---- ---- Income: Interest on deposits $ 33 $ 102 $ 107 Interest on loans 6 12 54 Interest on notes 474 502 386 Other operating income 19 3 Dividends from bank subsidiary 925 425 1,000 Expenses: Interest on notes 343 263 196 Operating expenses 317 153 181 ------ ------ ------ Income before federal income taxes and equity in undistributed earnings of subsidiaries 797 625 1,173 Income tax benefit (expense) 42 (68) (85) Equity in undistributed earnings of subsidiaries 3,561 3,735 3,042 ------ ------ ------ Net Income $4,400 $4,292 $4,130 ====== ====== ====== NOTE Q - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued) CONDENSED STATEMENT OF CASH FLOWS Years ended December 31: 2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $4,400 $4,292 $4,130 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries(3,561) (3,735) (3,042) Change in other assets (2,014) (36) 1,198 Change in other liabilities (15) (8) 111 ------ ------ ------ Net cash provided by operating activities (1,190) 513 2,397 ------ ------ ------ Cash flows from investing activities: Capital contributions to subsidiaries (6,090) Proceeds from repayment of long-term note from subsidiary 4,000 Change in other long-term investments (156) Change in other short-term investments (645) (948) (4,434) Change in subsidiary line of credit 153 (186) 1,750 Change in interest-bearing deposits 801 5,744 (6,562) ------ ------ ------ Net cash used in investing activities (1,937) 4,610 (9,246) ------ ------ ------ Cash flows from financing activities: Proceeds from issuance of long-term debt 5,155 Change in other short-term borrowings 1,621 (3,923) 7,003 Cash dividends paid (2,074) (1,877) (1,506) Cash paid in lieu of fractional shares in stock split (15) (7) Proceeds from issuance of common stock 317 881 1,359 Purchases of treasury stock (1,892) (189) ------ ------ ------ Net cash used in financing activities 3,127 (5,123) 6,849 ------ ------ ------ Cash and cash equivalents: Change in cash and cash equivalents 0 0 0 Cash and cash equivalents at beginning of year 50 50 50 ------ ------ ------ Cash and cash equivalents at end of year $ 50 $ 50 $ 50 ====== ====== ====== NOTE R - ACQUISITION AND INTANGIBLE ASSETS On September 24, 1999, the Bank acquired from Huntington National Bank (HNB) certain assets and assumed certain deposits and other liabilities in accordance with a purchase and assumption agreement of the same date. The acquisition was accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed have been recorded based on their estimated fair market value at the date of acquisition. A summary of assets acquired and liabilities assumed follow: Cash $ 428 Premises and equipment 885 Funds received from HNB 18,933 Goodwill 1,442 ------- Total assets $21,688 ======= Deposit liabilities $21,590 Accrued interest payable and other liabilities 98 ------- Total liabilities $21,688 ======= Goodwill totaled $1,396 at December 31, 2000 and is being amortized over an original term of 12 years on a straight line basis. Amortization expense for goodwill totaled $129 for 2000 and $30 for 1999. On December 15, 1998 Jackson Savings Bank, Jackson, Ohio was acquired in a business combination accounted for as a pooling of interests. A total of 74,167 shares of the Company's common stock were issued in exchange for all of the outstanding shares of Jackson and Jackson became a wholly owned subsidiary of the Company. The consolidated financial statements have been restated to include the effect of Jackson for all periods presented based on the historical amounts reported by Jackson. The following is a summary of the separate results of operations of the Company and Jackson for the year ended December 31, 1998. Years ended December 31: 1998 Net interest income Company $18,988 Jackson 512 ------- Combined $19,500 ======= Net income Company $ 3,788 Jackson 342 ------- Combined $ 4,130 ======= On November 11, 2000, Jackson merged into the Bank with management's objective of improving operational efficiencies. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (dollars in thousands, except per share data) Quarters Ended 2000 Mar. 31 Jun. 30 Sept. 30 Dec. 31 Total interest income $10,652 $11,100 $11,627 $11,816 Total interest expense 5,380 5,778 6,282 6,625 Net interest income 5,272 5,322 5,345 5,191 Provision for loan losses 302 407 456 725 Net Income 1,052 991 1,099 1,258 Net income per share $ .30 $ .28 $ .31 $ .36 1999 Total interest income $ 9,437 $ 9,890 $10,214 $10,465 Total interest expense 4,376 4,558 4,765 5,138 Net interest income 5,061 5,332 5,449 5,327 Provision for loan losses 448 557 438 861 Net Income 1,032 1,141 1,097 1,022 Net income per share $ .29 $ .33 $ .31 $ .29 1998 Total interest income $ 8,181 $ 8,720 $ 8,981 $ 9,309 Total interest expense 3,683 3,839 4,027 4,142 Net interest income 4,498 4,881 4,954 5,167 Provision for loan losses 357 535 491 912 Net Income 967 994 1,004 1,165 Net income per share $ .28 $ .28 $ .29 $ .33 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Ohio Valley Banc Corp. Gallipolis, Ohio We have audited the accompanying consolidated statements of condition of Ohio Valley Banc Corp., as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ohio Valley Banc Corp. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Columbus, Ohio February 1, 2001 SUMMARY OF COMMON STOCK DATA OHIO VALLEY BANC CORP. Years ended December 31, 2000 and 1999 INFORMATION AS TO STOCK PRICES AND DIVIDENDS: The market for the common stock of the Company is not highly active and trading has historically been limited. On February 9, 1996, the Company's common stock was established on NASDAQ securities market under the symbol "OVBC". Prior to this date a limited market was created in the first quarter of 1992 through the Ohio Company. The following table shows bid and ask quotations for the Company's common stock during 2000 and 1999. The range of market price is compiled from data provided by the broker based on limited trading. The quotations are inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions. 2000 Low Bid High Bid Low Ask High Ask - ---- ------- -------- ------- -------- First Quarter $29.50 $33.50 $30.00 $34.75 Second Quarter 26.00 29.50 26.75 31.00 Third Quarter 25.75 26.63 26.25 28.00 Fourth Quarter 24.75 26.56 25.13 27.25 1999 Low Bid High Bid Low Ask High Ask - ---- ------- -------- ------- -------- First Quarter $32.80 $33.60 $33.60 $35.20 Second Quarter 31.25 34.00 32.38 36.00 Third Quarter 29.25 33.50 29.50 35.00 Fourth Quarter 31.25 35.00 32.00 35.75 Dividends per share 2000 1999 - ------------------- ---- ---- First Quarter $.14 $.11 Second Quarter .15 .14 Third Quarter .15 .14 Fourth Quarter .15 .14 Shown above is a table which reflects the dividends paid per share on the Company's common stock. This disclosure is based on the weighted average number of shares for each year and does not indicate the amount paid on the actual shares outstanding at the end of each quarter. As of December 31, 2000 the number of holders of common stock was 1,839 an increase from 1,766 shareholders at December 31, 1999. MANAGEMENT'S DISCUSSION AND ANALYSIS The purpose of this discussion is to provide an analysis of the Company's financial condition and results of operations which is not otherwise apparent from the audited consolidated financial statements included in this report. The accompanying consolidated financial information has been prepared by management in conformity with generally accepted accounting principles and is consistent with that reported in the consolidated statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following tables and related discussion. RESULTS OF OPERATIONS: SUMMARY Ohio Valley Banc Corp generated earnings of $4,400 for 2000 an increase of 2.5% from 1999. Net income was up 3.9% in 1999. Net income per share of $1.25 for 2000 represented continued growth from $1.22 in 1999 and $1.18 in 1998. Asset growth for 2000 was $39,601 or 7.6% which grew total assets to $561,658. The Company's return on assets (ROA) declined to .81% for 2000 compared to 1999's ROA of .88% and 1998's ROA of 1.01%. Return on equity (ROE) was 10.29% for 2000 compared to 10.29% for 1999 and 10.69% for 1998. The average of the bid and ask price for the Company's stock was $25.375 at December 31, 2000 compared to $33.625 at year-end 1999 and $33.20 at year-end 1998. NET INTEREST INCOME The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense on the liabilities used to fund those assets. Net interest income is affected by changes in both the average volume and mix of the balance sheet and the level of interest rates for financial instruments. Changes in net interest income are measured by net interest margin and net interest spread. Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Both of these are reported on a taxable equivalent basis. Net interest margin is greater than net interest spread due to the interest earned on interest-earning assets funded from noninterest bearing funding sources, primarily demand deposits and stockholders' equity. Following is a discussion of changes in interest-earning assets, interest-bearing liabilities and the associated impact on interest income and interest expense for the three years ending December 31, 2000. Tables I and II have been prepared to summarize the significant changes outlined in this analysis. Net interest income on a fully tax equivalent basis (FTE) declined $59 in 2000, a decrease of .27% compared to the $21,546 earned in 1999. This decline was primarily attributable to an increase in funding costs resulting in a lower net interest margin. For 1999, net interest income increased 8.4% over 1998. The growth in net interest income for 1999 was attributable to an increase in interest-earning assets which was partially offset by a decline in net interest margin. For 2000, average earning assets grew by 11.3% as compared to growth of 19.5% in 1999. Driving the growth in earning assets was the growth in average loan balances. Average total loans expanded $49,812 or 13.0% from 1999 and represented 84.7% of earning assets. This compares to average loan growth of 25.2% for 1999 and loans representing 83.4% of earning assets. Management focuses on generating loan growth as this portion of earning assets provides the greatest return to the Company. Although loans comprise a larger percentage of earning assets, management is comfortable with the current level of loans based on collateral values, the balance of the allowance for loan losses and the Company's well-capitalized status. Average securities declined from 18.6% of earning assets for 1998 to 14.5% in 2000. Management maintains securities at a dollar level adequate to provide ample liquidity and cover pledging requirements. Average interest-bearing liabilities increased 12.9% between 1999 and 2000 and increased 22.1% between 1998 and 1999. While the composition of interest-bearing liabilities consists mostly of time deposits, which were 57.5%of interest-bearing liabilities in 2000, 53.7% in 1999 and 58.7% in 1998, more emphasis has been placed on other borrowed funds and NOW accounts. Borrowed funds have increased from 8.3% of interest-bearing liabilities in 1998 to 10.6% in 2000. The use of borrowed funds has been a cost-effective funding source for the Company's positive loan growth. The average cost of borrowed funds for 2000 is 6.00% compared to time deposits average cost of 6.03%. Management has also been effective in generating additional deposits through NOW accounts, which have increased from 11.2% of interest-bearing liabilities in 1998 to 18.4% in 2000. Although these balances were influenced by more aggressive pricing on NOW accounts, the average cost was less than traditional time deposits. The net interest margin declined .49% to 4.21% in 2000 from 4.70% in 1999. This is compared to a .48% decrease in the net interest margin in 1999. Contributing to the decline in net interest margin in 2000 was the decrease in the net interest spread of .51%. The increase in yield on earning assets of .12% was completely offset by the increase in funding costs of .63%. Contributing to the positive growth in yield on earning assets was an increase in the return on average loans of .07% from 1999 combined with higher average balances in loans. Total funding costs increased as a result of the cost of borrowings increasing .61% and time deposits increasing .53%, largely due to the interest rate increases that were evident in 2000. Additionally, the cost of NOW accounts increased .79%. The impact of interest free funds on the net interest margin increased from .65% in 1999 to .67% in 2000. The .02% increase in the contribution of interest free funding sources combined with the .51% decrease in the net interest spread yielded the .49% decrease in the net interest margin. The 1999 decrease in net interest margin was due to a .37% decrease in net interest spread with asset yields decreasing .46% partially offset by funding costs decreasing .09%. The decrease in net interest spread was further impacted by a decrease of .11% from interest free funding sources. Although the net interest margin will continue to be challenged in 2001, management does not expect the net interest margin to decline at the levels experienced in 2000 and 1999. NONINTEREST INCOME AND EXPENSE Total noninterest income, excluding securities gains and losses, increased $1,093 a 37.1% gain over 1999. Total other income increased 21.4% in 1999. Driving the Company's growth in noninterest income was the increase in service charge income on deposit accounts which was up $779 in 2000 and $268 in 1999. Income earned on life insurance contracts from the Company's supplemental retirement program was up $75 in 2000 and $28 in 1999. Additionally, other operating income increased $197 over 1999 and $188 over 1998 with gains in fee income from debit and credit card transactions, commissions earned from loan insurance sales and loan service fees. Total noninterest expense increased $918 or 5.7% in 2000 and $1,859 or 13.1% in 1999. The most significant expense in this category is salary and employee benefits which increased $110 or only 1.2% from 1999 to 2000. Contributing to this minimal increase was the decrease in the Company's full-time equivalent employee base from 257 at year-end 1999 to 237 at year-end 2000, as more emphasis has been placed on reallocating employees'responsibilities as opposed to hiring new individuals. Salaries and employee benefits expense increased $1,101 or 13.6% from 1998 to 1999 largely due to the new branch openings and acquisitions during this period which contributed to the increase in number of full-time equivalent employees. Also associated with the new offices was an increase in occupancy expense and furniture and equipment expense for both 2000 and 1999. These increased costs are related to depreciation, rental property costs and utilities. The increase in other operating expenses was related to advertising, computer software depreciation, conversion expenses from the purchase of the Huntington branches, expenses associated with the 1998 acquisition and 2000 merger of Jackson Savings and general inflationary increases. FINANCIAL CONDITION: SECURITIES Management's goal in structuring the portfolio is to maintain a prudent level of liquidity while providing an acceptable rate of return without sacrificing asset quality. Maturing securities have historically provided sufficient liquidity such that management has not sold a debt security in several years. Total securities increased $4,206 or 5.9% compared to year-end 1999. A portion of this increase was related to the market appreciation on securities classified as available for sale. The portfolio consists primarily of U.S. Treasury notes and U.S. Government agency bonds which comprise approximately 71% of total securities. Based on the overall composition, the portfolio's exposure to credit risk is minimal. The weighted average FTE yield on debt securities at year-end 2000 was 6.54% as compared to 6.42% at year-end 1999. Although management strategically ladders investment maturities to reduce the exposure to changes in interest rates, the yield on securities should decline in 2001 based on current reinvestment opportunities. Table III provides a summary of the portfolio by category and remaining contractual maturity. Issues classified as equity securities have no stated maturity date and are not included in Table III. LOANS In 2000, total loans increased $37,145 or 9.0% to reach $448,303. The largest contributor was commercial loans which experienced growth of $20,241 or 16.9%. The commercial loan area originated nearly $80,000 in loans for 2000. Approximately 77% of the loans were originated in Gallia, Jackson, Pike and Franklin counties and 16% was originated from our West Virginia markets. Consumer loans expanded by $9,071 representing a 10.2% gain. A portion of the consumer loans were originated through indirect lending, primarily from area automobile dealers, and are subject to the same underwriting as our regular loans. Indirect loan balances represent about one third of total consumer loans. In 2000, real estate loans grew $8,099 a decline from the growth of $37,975 generated in 1999. Like many financial institutions, the Company's real estate growth was impacted by the higher interest rates experienced during 2000. With the Company's expansion into new markets, approximately two thirds of real estate originations occurred outside of Gallia county. The Company generally originates real estate loans for its own portfolio, as very few loans are sold on the secondary market. Recently, the Bank began offering secondary market loans through the West Virginia Housing Authority to enhance its customer service and loan pricing. Tables V, VI, and VII have been provided to enhance the understanding of the loan portfolio and the allowance for potential loan losses. Management evaluates the adequacy of the allowance for loan losses quarterly based on several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, and management's estimate of probable losses. Actual losses on loans are reflected as reductions in the reserve and are referred to as charge-offs. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in management's opinion, to maintain the allowance for loan losses at an adequate level. The allowance required is primarily a function of the relative quality of the loans in the loan portfolio, the mix of loans in the portfolio and the rate of growth of outstanding loans. The ratio of net charge-offs to average total loans at December 31, 2000 was .36% down from .40% at December 31, 1999 due mostly to declining losses in the commercial loan area. Net charge-offs in both the real estate and commercial loan areas still remain relatively low, which represents the overall quality of these segments of the loan portfolio. Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, are returned to performing status when the loan is brought current and has performed in accordance with contractual terms. Nonperforming loans were approximately $6,639 or 1.48% of outstanding balances at December 31, 2000 compared to $6,664 or 1.62% of outstanding balances at the end of 1999. For 2000, provision expense was down by $413 compared to the provision expense for 1999. This decline in provision expense was largely associated with the slower growth rate of the loan portfolio in 2000 (9.0%) as compared to 1999 (18.4%). In addition, net charge-offs as a percent of average total loans and nonperforming loans to total loans both declined in 2000. Furthermore, real estate loans comprise nearly 47% of the loan portfolio. This type of loan typically represents relatively lower risk loans due to higher, more stable value of collateral and therefore require a lower allocation of the allowance for loan losses. As a percentage of total loans, the allowance for loan losses at December 31, 2000 was 1.20%, down from 1.23% at December 31, 1999. Management believes the allowance is adequate to absorb probable losses in the portfolio based on collateral values as well as a high relative volume of real estate mortgages. Management anticipates that it will continue its provision to the allowance for loan losses at its current level for the foreseeable future based on the current status of nonperforming loans. DEPOSITS Interest-earning assets are funded primarily by deposits. The accompanying table IV shows the composition of total deposits as of December 31, 2000. Total deposits grew $27,040 or 6.7% to reach $432,371 by year-end 2000. Leading the growth in deposits was certificates of deposits with an increase of $25,431. The certificate of deposit growth occurred mostly in Gallia, Mason, Cabell and Meigs counties. NOW accounts also contributed to deposit growth with an increase of $5,889 driven by the Company's Gold Club product, which offers a NOW account combined with other banking benefits. This product also contributed to the $5,497 decrease in savings and money market accounts which pay lower interest rates than the Gold Club account. Noninterest-bearing deposits increased $1,217. With the expansion in new markets, management expects continued growth in deposits in 2001. FUNDS BORROWED In addition to traditional deposits, the Company considers borrowed funds when evaluating funding sources. Other funds borrowed consist primarily of Federal Home Loan Bank (FHLB) advances, securities sold under agreements to repurchase, and promissory notes. FHLB advances are subject to collateral agreements and are secured by qualifying first mortgage loans and FHLB stock. Management has utilized FHLB advances to fund long-term assets and to fund short-term liquidity needs. At December 31, 2000, the balance of FHLB advances totaled $44,753 compared to $38,746 at December 31, 1999. FHLB borrowings have two distinct advantages: they can be less expensive than deposits for comparable terms and they are not subject to early redemption. Management will continue to evaluate borrowings from the FHLB as an alternative funding source. Promissory notes are primarily associated with funding loans at Loan Central and were issued with terms of one year or less. CAPITAL RESOURCES The Company maintains a capital level that exceeds regulatory requirements as a margin of safety for its depositors and shareholders. Shareholders' equity totaled $44,492 at December 31, 2000, compared to $42,708 at December 31, 1999, which represents growth of 4.2%. All of the capital ratios exceeded the regulatory minimum guidelines as identified in Note P "Regulatory Matters". Cash dividends paid of $2,074 for 2000 represents a 10.5% increase over the cash dividends paid during 1999. The increase in cash dividends paid is largely due to an increase in the dividend rate paid per share. The Company maintains a dividend reinvestment and stock purchase plan. The plan allows shareholders to purchase additional shares of company stock. A benefit of the plan is to permit the shareholders to reinvest cash dividends as well as make supplemental purchases without the usual payment of brokerage commissions. During 2000, the Company issued 11,198 shares under the dividend reinvestment and stock purchase plan. At December 31, 2000, approximately 73% of the shareholders were enrolled in the dividend reinvestment plan. Members of the plan invested $317 in 2000 which represents 15% of year-to-date dividends paid. As part of the Company's stock repurchase program, management was able to utilize the proceeds from reinvested dividends and voluntary participant cash to purchase shares on the open market and redistribute those dollars through the dividend reinvestment plan with less need for the issuance of common stock. The Company's Board of Directors recently voted to extend the maturity date of the stock repurchase program to February 10, 2002. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company's goal for interest rate sensitivity management is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations. Interest rate risk ("IRR") is the exposure of the Company's financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability, but excessive levels of IRR can threaten the Company's earnings and capital. It is management's policy not to position the balance sheet so as to expose the Company to levels of interest rate risk which could significantly impair earnings performance or endanger capital. The Company's asset and liability committee monitors the rate sensitivity of the balance sheet weekly through parameters established by the Board of Directors. The committee uses an interest rate sensitivity gap analysis prepared quarterly to monitor the relationship between the maturity and repricing of its interest-earning assets and interest-bearing liabilities. Interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets and interest-bearing liabilities maturing or repricing within a specified time period. A gap position is considered positive when the amount of interest sensitive assets exceed the amount of interest sensitive liabilities, and is considered negative when the amount interest sensitive liabilities exceed the amount of interest sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would negatively affect net interest income. This analysis assumes that interest rate changes for interest-earning assets and interest-bearing liabilities are of the same magnitude and velocity, whereas actual interest rate changes generally differ in magnitude and velocity. Based on the gap model, the Company was liability sensitive in the short term and asset sensitive for periods over five years. The Company's exposure to interest rate risk is primarily managed through the selection of the type and repricing characteristics of interest-earning assets and interest-bearing liabilities. Management can influence the Company's gap position by offering fixed or variable rate products, by changing the terms of new loans, investments and time deposits, or by selling existing assets or repaying certain liabilities. The Company's ability to manage its gap position can be challenged by customer preferences which may not meet the Company's goals. The FHLB assists in funding interest-earning assets by providing advances with similar repricing characteristics as many of the loans offered by the Company. Table VIII 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. Noninterest-bearing checking deposits assume an annual decay rate of 14% and savings and interest-bearing checking accounts assume an annual decay rate of 20% based on the Company's historical experience. A fundamental difference between the table and the gap model previously discussed is that the table presents financial intruments based on the date of expected cash flows while gap analysis only focuses on repricing characteristics of financial instruments. Liquidity management should focus on matching the cash inflows and outflows within the Company's natural market for loans and deposits. This goal is accomplished by maintaining sufficient asset liquidity along with stable core deposits. The primary sources of liquidity are interest-bearing balances with banks, federal funds sold and the maturity and repayment of investments and loans as well as cash flows provided from operations. The Company has classified $59,819 in securities as available for sale at December 31, 2000. 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. The Bank also has the ability to purchase federal funds from several of its correspondent banks. Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company's financial condition. See statement of cash flows. INFLATION Consolidated financial data included herein has been prepared in accordance with generally accepted accounting principles (GAAP). Presently, GAAP requires the Company to measure financial position and operating results in terms of historical dollars with the exception of securities available for sale, which are carried at fair value. Changes in the relative value of money due to inflation or deflation are generally not considered. In management's opinion, changes in interest rates affect the financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as monetary and fiscal policies. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today's volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree. 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. CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I December 31 ------------------------------------------------------------------------------------ 2000 1999 1998 (dollars in thousands) -------------------------- -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ------- ------- ---- ASSETS - ------ Interest-earning assets: Interest-bearing balances $ 729 34 4.63% $ 781 $ 30 3.87% $ 3,079 $ 176 5.71% with banks Federal funds sold 3,418 208 6.10 2,485 121 4.87 3,910 214 5.47 Securities: Taxable 58,106 3,690 6.35 56,153 3,490 6.21 55,092 3,457 6.27 Tax exempt 15,898 1,137 7.15 16,849 1,183 7.02 16,307 1,136 6.97 Loans 432,165 40,483 9.37 382,353 35,559 9.30 305,392 30,590 10.02 -------- ------- ----- -------- ------- ----- -------- ------- ----- Total interest- earning assets 510,316 45,552 8.93% 458,621 40,383 8.81% 383,780 35,573 9.27% Noninterest-earning assets: Cash and due from banks 12,851 13,146 9,268 Other nonearning assets 26,257 21,517 19,065 Allowance for loan losses (5,118) (4,652) (3,631) -------- -------- -------- Total noninterest- earning assets 33,990 30,011 24,702 Total assets $544,306 $488,632 $408,482 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts $82,307 3,780 4.59% $ 66,105 2,514 3.80% $ 36,152 1,222 3.38% Savings and Money Market 42,430 1,091 2.57 52,628 1,426 2.71 52,671 1,381 2.62 Time deposits 256,846 15,496 6.03 212,091 11,662 5.50 189,955 10,886 5.73 Repurchase agreements 17,606 859 4.88 13,961 510 3.65 18,148 685 3.77 Other borrowed money 47,311 2,839 6.00 50,539 2,725 5.39 26,832 1,517 5.65 -------- ------- ----- -------- ------- ----- -------- ------- ----- Total interest- bearing liabilities 446,500 24,065 5.39% 395,324 18,837 4.76% 323,758 15,691 4.85% Noninterest-bearing liabilities: Demand deposit accounts 47,291 45,226 40,715 Other liabilities 7,742 6,352 5,370 -------- -------- ------ Total noninterest- bearing liabilities 55,033 51,578 46,085 Shareholders' equity 42,773 41,730 38,639 -------- -------- -------- Total liabilities and shareholders' equity $544,306 $488,632 $408,482 ======== ======== ======== Net interest earnings $21,487 $21,546 $19,882 ======= ======= ======= Net interest earnings as a percent of interest-earning assets 4.21% 4.70% 5.18% ----- ----- ----- Net interest rate spread 3.54% 4.05% 4.42% ----- ----- ----- Average interest-bearing liabilities to average earning assets 87.49% 86.20% 84.36% ===== ===== =====
Fully taxable equivalent yields are calculated assuming a 34% tax rate, net of nondeductible interest expense. Average balances are computed on an average daily basis. The average balance for available-for-sale securities includes the market value adjustment. However, the calculated yield is based on the securities' amortized cost. Average loan balances include nonaccruing loans. Loan income includes cash received on nonaccruing loans. RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II 2000 1999 ----------------------------- ---------------------------- (dollars in thousands) Increase (Decrease) Increase (Decrease) From Previous Year Due to From Previous Year Due to ----------------------------- ---------------------------- Volume Yield/Rate Total Volume Yield/Rate Total ------ ---------- ----- ------ ---------- ----- INTEREST INCOME - --------------- Interest-bearing balances with banks $ (2) $ 5 $ 3 $ (102) $ (44) $ (146) Federal funds sold 52 35 87 (71) (22) (93) Securities: Taxable 123 78 201 66 (33) 33 Tax exempt (68) 22 (46) 39 8 47 Loans 4,665 259 4,924 7,279 (2,310) 4,969 ------- ------- ------- ------- ------- ------- Total interest income 4,770 399 5,169 7,211 (2,401) 4,810 INTEREST EXPENSE - ---------------- NOW accounts 685 580 1,265 1,122 170 1,292 Savings and Money Market (265) (70) (335) (1) 46 45 Time deposits 2,625 1,209 3,834 1,231 (455) 776 Repurchase agreements 152 197 349 (153) (22) (175) Other borrowed money (181) 296 115 1,281 (73) 1,208 ------- ------- ------- ------- ------- ------- Total interest expense 3,016 2,212 5,228 3,480 (334) 3,146 ------- ------- ------- ------- ------- ------- Net interest earnings $ 1,754 $(1,813) $ (59) $ 3,731 $(2,067) $ 1,664 ======= ======= ======= ======= ======= =======
The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. Fully taxable equivalent yield assumes a 34% tax rate, net of related nondeductible interest expense. SECURITIES
Table III MATURING --------------------------------------------------------------------------- As of December 31, 2000 Within After One but After Five but (dollars in thousands) One Year Within Five Years Within Ten Years After Ten Years -------- ----------------- ---------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- U.S. Treasury securities $ 2,508 6.42% Obligations of U.S. Government agency securities 6,035 6.14% $44,761 6.25% Obligations of states and political subdivisions 2,013 7.29% 7,012 7.87% $3,525 7.31% $2,953 7.72% Mortgage-backed securities 5 8.00% 635 6.37% 1,672 5.66% ------- ---- ------- ---- ------ ---- ------ ---- Total debt securiities $10,556 6.42% $51,778 6.47% $4,160 7.17% $4,625 6.97% ======= ==== ======= ==== ====== ==== ====== ====
Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions using a 34% rate. Weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Mortgage-backed securities, which have prepayment provisions, are assigned to a maturity based on estimated average lives. Securities are shown at their carrying values which include the market value adustments for available-for-sale securities. DEPOSITS Table IV as of December 31 (dollars in thousands) 2000 1999 1998 ---- ---- ---- Interest-bearing deposits: NOW accounts $ 80,336 $ 74,447 $ 47,190 Money Market 9,622 12,419 20,103 Savings accounts 26,976 29,676 33,624 IRA accounts 34,683 34,938 30,870 Certificates of Deposit 233,093 207,407 149,569 -------- -------- -------- 384,710 358,887 281,356 Noninterest-bearing deposits: Demand deposits 47,661 46,444 45,961 -------- -------- -------- Total deposits $432,371 $405,331 $327,317 ======== ======== ======== ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES Table V Years Ended December 31 (dollars in thousands) 2000 1999 1998 1997 1996 - ---------------------- ---- ---- ---- ---- ---- Commercial loans $1,546 $1,278 $1,132 $ 879 $ 887 Percentage of loans to total loans 31.36% 29.33% 28.18% 28.79% 29.08% Real estate loans 609 270 264 218 338 Percentage of loans to total loans 46.78% 49.04% 47.14% 43.07% 42.56% Consumer loans 1,629 1,444 1,360 949 799 Percentage of loans to total loans 21.86% 21.63% 24.68% 28.14% 28.36% Unallocated 1,601 2,063 1,521 1,344 1,156 ------- ------- ------- ------- ------- Allowance for Loan Losses $5,385 $5,055 $4,277 $3,390 $3,180 ======= ======= ======= ======= ======= 100.00% 100.00% 100.00% 100.00% 100.00% ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans .36% .40% .46% .38% .25% ======= ======= ======= ======= ======= The above allocation is based on estimates and subjective judgements and is not necessarily indicative of the specific amounts or loan categories in which losses may ultimately occur. SUMMARY OF NONPERFORMING AND PAST DUE LOANS Table VI (dollars in thousands) 2000 1999 1998 1997 1996 - ---------------------- ---- ---- ---- ---- ---- Impaired loans $1,233 $1,413 $ 624 $ 430 $ 449 Past due-90 days or more and still accruing 3,691 3,711 2,106 3,607 2,707 Nonaccrual 2,948 2,953 981 1,019 737 Accruing loans past due 90 days or more to total loans .82% .90% .61% 1.29% 1.02% Nonaccrual loans as a % of total loans .66% .72% .28% .36% .28% Impaired loans as a % of total loans .28% .34% .18% .15% .17% Allowance for loans losses as a % of total loans 1.20% 1.23% 1.23% 1.21% 1.20% Management believes that the impaired loan disclosures are comparable to the nonperforming loan disclosures except that the impaired loan disclosures do not include single family residential or consumer loans which are analyzed in the aggregate for loan impairment purposes. During 2000, the Company did not recognize any interest income on impaired loans. Loans not included above that management feels have loss potential total approximately $530. The Company has no assets which are considered to be troubled debt restructurings. Management formally considers placing a loan on nonaccrual status when collection of principal or interest has become doubtful. Furthermore, a loan should not be returned to the accrual status unless either all delinquent principal or interest has been brought current or the loan becomes well secured and is in the process of collection. MATURITY AND REPRICING DATA OF LOANS
Table VII As of December 31, 2000 Maturing/Repricing (dollars in thousands) Within After One but One Year Within Five Years After Five Years Total -------- ----------------- ---------------- ----- Commercial loans and other $ 81,214 $ 12,679 $ 46,673 $140,566 Real estate loans 50,352 26,555 132,817 209,724 Consumer loans 22,114 61,547 14,352 98,013 -------- -------- -------- -------- Total loans $153,680 $100,781 $193,842 $448,303 ======== ======== ======== ========
Loans maturing or repricing after one year with: Variable interest rates $ 31,222 Fixed interest rates 263,401 -------- Total $294,623 ======== RATE SENSITIVITY ANALYSIS
Table VIII (dollars in thousands) As of December 31, 2000 Principal Amount Maturing in: There- Fair Value 2001 2002 2003 2004 2005 after Total 12/31/00 Rate-Sensitive Assets: Fixed interest rate loans $ 10,660 $ 9,723 $ 16,261 $ 23,477 $ 20,637 $199,150 $279,908 $282,628 Average interest rate 10.53% 11.76% 11.66% 10.50% 9.57% 8.19% 8.90% Variable interest rate loans $ 44,213 $ 3,730 $ 2,249 $ 5,267 $ 5,079 $107,857 $168,395 $168,487 Average interest rate 11.18% 10.56% 9.65% 9.76% 10.35% 8.71% 9.49% Fixed interest rate securities $ 10,530 $ 11,287 $ 20,351 $ 10,696 $ 8,787 $ 13,274 $ 74,925 $ 75,930 Average interest rate 6.44% 6.24% 6.17% 6.57% 7.30% 7.19% 6.58% Other interest-bearing assets $ 816 $ 816 $ 816 Average interest rate 5.12% 5.12% Rate-Sensitive Liabilities: Noninterest-bearing checking $ 6,863 $ 5,875 $ 5,029 $ 4,305 $ 3,685 $ 21,904 $ 47,661 $ 47,661 Savings & Interest-bearing checking $ 19,699 $ 16,274 $ 13,465 $ 11,159 $ 9,260 $ 47,077 $116,934 $116,935 Average interest rate 3.83% 3.87% 3.91% 3.94% 3.98% 4.16% 4.00% Time deposits $193,424 $ 46,467 $ 22,576 $ 2,064 $ 1,813 $ 1,432 $267,776 $270,559 Average interest rate 6.30% 6.42% 6.37% 6.14% 6.62% 7.27% 6.22% Fixed interest rate borrowings $ 18,381 $ 8,765 $ 4,581 $ 675 $ 121 $ 19,124 $ 51,647 $ 51,564 Average interest rate 6.45% 5.66% 5.81% 6.01% 5.93% 6.91% 6.42% Variable interest rate borrowings $ 25,320 $ 25,320 $ 25,320 Average interest rate 5.65% 5.65%
KEY RATIOS Table IX 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Return on average assets .81% .88% 1.01% 1.02% .98% Return on average equity 10.29% 10.29% 10.69% 10.98% 10.82% Dividend payout ratio 47.14% 43.73% 37.13% 37.81% 39.53% Average equity to average assets 7.86% 8.54% 9.46% 9.32% 9.04% EX-21 3 0003.txt SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT STATE OF PERCENTAGE NAME INCORPORATION OF OWNERSHIP ---- ------------- ------------ The Ohio Valley Bank Company Ohio 100% Loan Central, Inc. Ohio 100% EX-23 4 0004.txt CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 filed on or about August 4, 1997 of Ohio Valley Banc Corp. of our report dated February 1, 2001 related to the consolidated statements of condition of Ohio Valley Banc Corp. as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ending December 31, 2000, which report is incorporated by reference in this Form 10-K. /s/CROWE, CHIZEK AND COMPANY LLP Crowe, Chizek and Company LLP Columbus, Ohio March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----