-----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, H78PNkSR8yCB55g4n6LKHsg1J4ZG3DCE7y8QFZtzi3VXJf0uymnihuwZqMv+7vB3 vnX0sD1wl5QaSlbX3E7uZw== 0000894671-02-000141.txt : 20021114 0000894671-02-000141.hdr.sgml : 20021114 20021114163227 ACCESSION NUMBER: 0000894671-02-000141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20914 FILM NUMBER: 02825401 BUSINESS ADDRESS: STREET 1: 420 THIRD AVE CITY: GALLIPOLIS STATE: OH ZIP: 45631 BUSINESS PHONE: 6144462631 10-Q 1 sec10q093002.txt SEC10Q093002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: SEPTEMBER 30, 2002 Commission file number: 0-20914 Ohio Valley Banc Corp ---------------------- (Exact name of Registrant as specified in its charter) Ohio (State or other jurisdiction of incorporation or organization) 31-1359191 ---------- (I.R.S. Employer Identification Number) 420 Third Avenue. Gallipolis, Ohio 45631 ---------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (740) 446-2631 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate the number of shares outstanding of the issuers classes of common stock, as of the latest practicable date. Common stock, $1.00 stated value Outstanding at October 31, 2002 3,445,739 common shares OHIO VALLEY BANC CORP FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2002 ================================================================================ Part I - Financial Information Item 1 - Financial Statements (Unaudited) Interim financial information required by Regulation 210.10-01 of Regulation S-X is included in this Form 10Q as referenced below: Consolidated Balance Sheets..................................... 1 Consolidated Statements of Income............................... 2 Condensed Consolidated Statements of Changes in Shareholders' Equity......................................... 3 Condensed Consolidated Statements of Cash Flows................. 4 Notes to the Consolidated Financial Statements.................. 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11 Item 3 - Quantitative and Qualitative Disclosure About Market Risk......................................... 15 Item 4 - Controls and Procedures................................ 16 Part II - Other Information Other Information and Signatures................................ 16 Certifications.................................................. 17 Exhibit Index - 99.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.......................... 19 OHIO VALLEY BANC CORP CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands) ================================================================================ September 30, December 31, 2002 2001 ------------- ------------ ASSETS Cash and noninterest-bearing deposits with banks $ 19,592 $ 17,288 Federal funds sold 12,300 9,000 ------------- ------------ Total cash and cash equivalents 31,892 26,288 Interest-bearing balances with banks 1,495 1,264 Securities available-for-sale 63,338 61,559 Securities held-to-maturity (estimated fair value: 2002 - $16,193, 2001 - $14,421) 15,119 13,973 Total loans 560,566 508,660 Less: Allowance for loan losses (6,982) (6,251) ------------- ------------ Net loans 553,584 502,409 Premises and equipment, net 8,346 8,702 Accrued income receivable 3,512 3,420 Intangible assets, net 1,169 1,267 Bank owned life insurance 12,526 12,089 Other assets 4,199 4,028 ------------- ------------- Total assets $ 695,180 $ 634,999 ============= ============= LIABILITIES Noninterest-bearing deposits $ 56,438 $ 56,735 Interest-bearing deposits 450,196 399,126 ------------- ------------- Total deposits 506,634 455,861 Securities sold under agreements to repurchase 26,163 29,274 Other borrowed funds 91,299 90,856 Obligated mandatorily redeemable capital securities of subsidiary trust 13,500 5,000 Accrued liabilities 8,435 7,708 ------------- ------------- Total liabilities 646,031 588,699 ------------- ------------- SHAREHOLDERS' EQUITY Common stock ($1.00 stated value, 10,000,000 shares authorized; 2002 - 3,602,854 shares issued, 2001 - 3,579,250 shares issued) 3,603 3,579 Additional paid-in capital 29,751 29,207 Retained earnings 18,264 15,979 Accumulated other comprehensive income 1,441 1,043 Treasury stock at cost (2002 - 147,115 shares, 2001 - 129,990 shares) (3,910) (3,508) ------------- ------------- Total shareholders' equity 49,149 46,300 ------------- ------------- Total liabilities and shareholders' equity $ 695,180 $ 634,999 ============= ============= ================================================================================ See notes to the consolidated financial statements. 1 OHIO VALLEY BANC CORP CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) ================================================================================ Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 --------- --------- --------- --------- Interest and dividend income: Loans, including fees $ 11,159 $ 11,145 $ 32,746 $ 32,261 Securities: Taxable 652 666 1,949 2,202 Tax exempt 190 190 551 575 Dividends 58 82 169 244 Other Interest 60 76 200 267 --------- --------- --------- --------- 12,119 12,159 35,615 35,549 Interest expense: Deposits 3,827 4,729 11,467 14,907 Repurchase agreements 85 158 280 486 Other borrowed funds 1,114 1,046 3,316 2,710 Obligated mandatorily redeemable capital securities of subsidiary trust 254 132 644 397 --------- --------- --------- --------- 5,280 6,065 15,707 18,500 --------- --------- --------- --------- Net interest income 6,839 6,094 19,908 17,049 Provision for loan losses 1,541 1,092 3,495 2,165 --------- --------- --------- --------- Net interest income after provision 5,298 5,002 16,413 14,884 Noninterest income: Service charges on deposit accounts 806 757 2,301 2,229 Trust fees 51 53 164 168 Income from bank owned insurance 172 146 512 430 Other 395 316 1,141 923 --------- --------- --------- --------- 1,424 1,272 4,118 3,750 Noninterest expense: Salaries and employee benefits 2,726 2,464 8,045 7,417 Occupancy expense 324 317 959 943 Furniture and equipment expense 280 267 814 806 Data processing expense 144 185 435 408 Other 1,278 1,346 4,682 4,238 --------- --------- --------- --------- 4,752 4,579 14,935 13,812 --------- --------- --------- --------- Income before income taxes 1,970 1,695 5,596 4,822 Provision for income taxes 560 475 1,582 1,340 --------- --------- --------- --------- NET INCOME $ 1,410 $ 1,220 $ 4,014 $ 3,482 ========= ========= ========= ========= Earnings per share $ 0.41 $ 0.35 $ 1.16 $ 1.00 ========= ========= ========= ========= ================================================================================ See notes to the consolidated financial statements. 2 OHIO VALLEY BANC CORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (dollars in thousands, except per share data) ================================================================================ Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 --------- --------- --------- --------- Balance at beginning of period $ 47,991 $ 45,426 $ 46,300 $ 44,492 Comprehensive income: Net income 1,410 1,220 4,014 3,482 Net change in unrealized gain or loss on available-for-sale securities 340 398 398 808 --------- --------- --------- --------- Total comprehensive income 1,750 1,618 4,412 4,290 Proceeds from issuance of common stock through dividend reinvestment plan 237 125 568 125 Cash dividends (588) (553) (1,729) (1,631) Shares acquired for treasury (241) (463) (402) (1,123) --------- --------- --------- --------- Balance at end of period $ 49,149 $ 46,153 $ 49,149 $ 46,153 ========= ========= ========= ========= Cash dividends per share $ 0.17 $ 0.16 $ 0.50 $ 0.47 ========= ========= ========= ========= ================================================================================ See notes to the consolidated financial statements. 3 OHIO VALLEY BANC CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands, except per share data) ================================================================================ Nine months ended September 30, 2002 2001 ------------ ------------ Net cash provided by operating activities $ 8,207 $ 8,000 Investing activities Proceeds from maturities of securities available-for-sale 26,413 20,164 Purchases of securities available- for-sale (27,467) (13,270) Proceeds from maturities of securities held-to-maturity 602 1,464 Purchases of securities held-to-maturity (1,779) (822) Change in interest-bearing deposits in other banks (231) (55) Net increase in loans (54,670) (49,616) Purchases of premises and equipment (513) (467) Purchases of insurance contracts (1,145) ------------ ------------ Net cash used in investing activities (57,645) (43,747) Financing activities Change in deposits 50,773 23,827 Cash dividends (1,729) (1,631) Proceeds from issuance of common stock 568 125 Purchases of treasury stock (402) (1,123) Change in securities sold under agreements to repurchase (3,111) 190 Proceeds from obligated mandatorily redeemable capital securities of subsidiary trust 8,500 Proceeds from long-term borrowings 9,040 39,125 Repayment of long-term borrowings (10,317) (8,882) Change in other short-term borrowings 1,720 (2,035) ------------ ------------ Net cash from financing activities 55,042 49,596 ------------ ------------ Change in cash and cash equivalents 5,604 13,849 Cash and cash equivalents at beginning of year 26,288 14,569 ------------ ------------ Cash and cash equivalents at September 30, $ 31,892 $ 28,418 ============ ============ Cash paid for interest $ 16,851 $ 18,894 Cash paid for income taxes 2,270 1,912 ================================================================================ See notes to the consolidated financial statements. 4 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp and its wholly owned subsidiaries The Ohio Valley Bank Company, Loan Central, Inc. and Ohio Valley Financial Services Agency, LLC., together referred to as the Company. All material intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements are prepared without audit and reflect all adjustments of a normal recurring nature which, in the opinion of Management, are necessary to present fairly the consolidated financial position of Ohio Valley Banc Corp. at September 30, 2002, and its results of operations and cash flows for the periods presented. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by accounting principles generally accepted in the United States of America (US GAAP) that might otherwise be necessary in the circumstances. The Annual Report for Ohio Valley Banc Corp for the year ended December 31, 2001, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The accounting and reporting policies followed by the Company conform to US GAAP and to general practices within the financial services industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses is particularly subject to change. The provision for income taxes is based upon the effective income tax rate expected to be applicable for the entire year. For consolidated financial statement classification and cash flow reporting purposes, cash and cash equivalents include cash on hand, noninterest-bearing deposits with banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. The Company reports net cash flows for customer loan transactions, deposit transactions, short-term borrowings and interest-bearing deposits with other financial institutions. Earnings per share is computed based on the weighted average shares outstanding during the period. Weighted average shares outstanding were 3,459,337 and 3,456,661 for the three months ending September 30, 2002 and September 30, 2001, respectively. Weighted average shares outstanding were 3,459,768 and 3,467,768 for the nine months ending September 30, 2002 and September 30, 2001, respectively. The majority of the Company's income is derived from commercial and retail business lending activities. Management considers the Company to operate in one segment, banking. In June 2001, the Financial Accounting Standings Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations". SFAS No. 141 requires all business combinations within its scope to be accounted for using the purchase method, rather than the pooling-of-interests method. The provisions of this statement apply to all business combinations initiated after June 30, 2001. The adoption of this statement will only impact the Company's financial statements if it enters into a business combination. ================================================================================ (Continued) 5 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting for such assets arising from prior and future business combinations. Upon the adoption of this statement, goodwill arising from business combinations is no longer amortized, but rather is assessed regularly for impairment, with any such impairment recognized as a reduction to earnings in the period identified. Other identified intangible assets, such as core deposit intangible assets, continue to be amortized over their estimated useful lives. The Company adopted this statement on January 1, 2002, and did not materially impact its financial statements. On October 1, 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 is effective October 1, 2002 and may be early applied. SFAS No. 147 supersedes SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions." SFAS No. 147 provides guidance on the accounting for the acquisition of a financial institution, and applies to all such acquisitions except those between two or more mutual enterprises. Under SFAS No. 147, the excess of the fair value of liabilities assumed over the fair value of tangible and identified intangible assets acquired in a financial institution business combination represents goodwill that should be accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets." If certain criteria are met, the amount of the unidentified intangible asset resulting from prior financial acquisitions is to be reclassified to goodwill upon adoption of this Statement. Financial institutions meeting conditions outlined in SFAS No. 147 are required to restate previously issued financial statements. The objective of the restatement is to present the balance sheet and income statement as if the amount accounted for under SFAS No. 72 as an unidentifiable asset has been reclassified to goodwill as of the date the Company adopted SFAS No. 142. Adoption of SFAS No. 147 on October 1, 2002 did not have a material effect on the Company's consolidated financial position or results of operations. As of October 1, 2002, the Company reclassified $1,169 of unidentifiable intangible assets to goodwill. NOTE 2 - SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair values of the securities, as presented in the consolidated balance sheet are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Values September 30, 2002 ---------- ----------- ------------ --------- Securities Available-for-Sale - ----------------------------- U.S. Government agency securities $ 54,785 $ 2,105 $ 56,890 Mortgage-backed securities 1,424 79 1,503 Equity securities 4,945 4,945 ---------- ----------- ------------ --------- Total securities $ 61,154 $ 2,184 $ 0 $ 63,338 ========== =========== ============ ========= Securities Held-to-Maturity - --------------------------- Obligations of state and political subdivisions $ 14,948 $ 1,093 $ (13) $ 16,028 Mortgage-backed securities 171 (6) 165 ---------- ----------- ------------ --------- Total securities $ 15,119 $ 1,093 $ (19) $ 16,193 ========== =========== ============ ========= ================================================================================ (Continued) 6 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 2 - SECURITIES (continued) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Values December 31, 2001 ---------- ----------- ------------ --------- Securities Available-for-Sale - ----------------------------- U.S. Treasury securities $ 1,990 $ 3 $ 1,993 U.S. Government agency securities 51,494 1,578 $ (16) 53,056 Mortgage-backed securities 1,719 15 1,734 Equity securities 4,776 4,776 ----------- ------------ ------------ --------- Total securities $ 59,979 $ 1,596 $ (16) $ 61,559 =========== ============ ============ ========= Securities Held-to-Maturity - --------------------------- Obligations of state and political subdivisions $ 13,765 $ 481 $ (25) $ 14,221 Mortgage-backed securities 208 (8) 200 ----------- ------------ ------------ --------- Total securities $ 13,973 $ 481 $ (33) $ 14,421 =========== ============ ============ ========= The amortized cost and estimated fair value of debt securities at September 30, 2002, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Available-for-Sale Held-to-Maturity -------------------------- -------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ------------ ----------- ----------- ----------- Debt securities: Due in one year or less $ 14,384 $ 14,522 $ 1,814 $ 1,835 Due in one to five years 40,401 42,368 4,559 4,865 Due in five to ten years 5,333 5,872 Due after ten years 3,242 3,456 Mortgage-backed sec. 1,424 1,503 171 165 ------------ ----------- ----------- ----------- Total debt securities $ 56,209 $ 58,393 $ 15,119 $ 16,193 ============ =========== =========== =========== Gains and losses on the sale of securities are determined using the specific identification method, however there were no sales of debt and equity securities during the first nine months of 2002 and 2001. ================================================================================ (Continued) 7 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 3 - LOANS Total loans as presented on the balance sheet are comprised of the following classifications: September 30, December 31, 2002 2001 ---------------- ---------------- Real estate loans $ 229,763 $ 226,212 Commercial and industrial loans 203,357 173,154 Consumer loans 126,763 108,437 Other loans 683 857 ---------------- ---------------- $ 560,566 $ 508,660 ================ ================ At September 30, 2002 and December 31, 2001, loans on nonaccrual status were approximately $8,252 and $3,297, respectively. Loans past due more than 90 days and still accruing at September 30, 2002 and December 31, 2001 were $1,041 and $3,013, respectively. NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of activity in the allowance for loan losses for the nine months ended September 30 is as follows: 2002 2001 ---------------- ---------------- Balance - January 1, $ 6,251 $ 5,385 Loans charged off: Real estate 482 268 Commercial 929 218 Consumer 2,095 1,473 ------------------ ----------------- Total loans charged off 3,506 1,959 Recoveries of loans: Real estate 110 49 Commercial 137 17 Consumer 495 368 ------------------ ----------------- Total recoveries 742 434 ------------------ ----------------- Net loan charge-offs (2,764) (1,525) Provision charged to operations 3,495 2,165 ------------------ ----------------- Balance - September 30, $ 6,982 $ 6,025 ================== ================= ================================================================================ (Continued) 8 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 4 - ALLOWANCE FOR LOAN LOSSES (continued) Information regarding impaired loans is as follows: September 30, December 31, 2002 2001 -------------- --------------- Balance of impaired loans $ 3,028 $ 960 ============== =============== Portion of impaired loan balance for which an allowance for credit losses is allocated $ 3,028 $ 960 ============== =============== Portion of allowance for loan losses allocated to the impaired loan balance $ 950 $ 300 ============== =============== Average investment in impaired loans year-to-date $ 3,477 $ 1,013 ============== =============== Interest on impaired loans was not material for the periods ended September 30, 2002 and September 30, 2001. All impaired loan balances were also included as part of the Company's nonperforming loans at September 30, 2002. NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the central and southeastern areas of Ohio as well as the western counties of West Virginia. Approximately 4.16% of total loans were unsecured at September 30, 2002 as compared to 4.81% at December 31, 2001. The Corporation is a party to financial instruments with off-balance sheet risk. These instruments are required in the normal course of business to meet the financial needs of its customers. The contract or notional amounts of these instruments are not included in the consolidated financial statements. At September 30, 2002, the contract or notional amounts of these instruments, which primarily include commitments to extend credit and standby letters of credit and financial guarantees, totaled approximately $62,318 as compared to $64,312 at December 31, 2001. ================================================================================ (Continued) 9 OHIO VALLEY BANC CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) ================================================================================ NOTE 6 - OTHER BORROWED FUNDS Other borrowed funds at September 30, 2002 and December 31, 2001 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 --------------- ---------------- --------- ---------- 2002 $ 80,287 $ 5,512 $ 5,500 $ 91,299 2001 $ 81,564 $ 3,792 $ 5,500 $ 90,856 Pursuant to collateral agreements with the FHLB, advances are secured by certain qualifying first mortgage loans and by FHLB stock which total $120,430 and $4,944 at September 30, 2002. Fixed rate FHLB advances mature through 2010 and have interest rates ranging from 3.87% to 6.62%. Promissory notes, issued primarily by the parent company, have fixed rates of 2.15% to 5.25% and are due at various dates through a final maturity date of March 1, 2004. At September 30, 2002, scheduled principal payments over the next five years are to be: FHLB borrowings Promissory notes FRB Notes Totals --------------- ---------------- --------- ---------- 2002 $ 2,964 $ 2,123 $ 5,500 $ 10,587 2003 13,932 3,289 17,221 2004 17,487 100 17,587 2005 17,114 17,114 2006 14,606 14,606 Thereafter 14,184 14,184 ---------------- ---------------- ---------- ---------- $ 80,287 $ 5,512 $ 5,500 $ 91,299 ================ ================ ========== ========== Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $31,885 at September 30, 2002 and $29,000 at December 31, 2001. Various investment securities from the Bank used to collateralize FRB notes totaled $6,015 at September 30, 2002 and $5,970 at December 31, 2001. NOTE 7 - TRUST PREFERRED SECURITIES Obligated mandatorily redeemable capital securities of a subsidiary trust (Trust Preferred Securities) of $8,500 were issued on March 26, 2002, and have a current variable rate of 5.39%, that adjusts quarterly, and a mandatory redemption date of March 26, 2032. However, beginning March 26, 2007, the Company may, at its option, redeem all or a portion of these trust preferred securities. Total trust preferred securities were unsecured through September 30, 2002. ================================================================================ 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION The following discussion focuses on the consolidated financial condition of Ohio Valley Banc Corp at September 30, 2002, compared to December 31, 2001, and the consolidated results of operations for the quarterly and year-to-date periods ending September 30, 2002, compared to the same periods in 2001. The purpose of this discussion is to provide the reader a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10-Q. The Registrant is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the liquidity, capital resources or operations except as discussed herein. Also, the Registrant is not aware of any current recommendations by regulatory authorities which would have such effect if implemented. FINANCIAL CONDITION The consolidated total assets of Ohio Valley Banc Corp. increased $60,181 or 9.5% during the first nine months to reach $695,180 at September 30, 2002. The factor contributing most to this growth in assets was loans which grew $51,906 or 10.2%. This strong growth in loans was funded primarily by deposits which increased $50,773 or 11.1% and the Company's newest trust preferred security issuance in the first quarter which totaled $8,500. A significant portion of the deposit growth occurred in NOW accounts and time deposits. During the first nine months of 2002, loan growth was led by commercial loans expanding $30,203 or 17.4%. This growth came mostly from loan originations within the primary market areas of Gallia, Jackson, Pike and Franklin counties in Ohio which accounted for 65% of the total increase. In addition, approximately 22% of commercial loan originations came from the growing West Virginia market areas. For the same period, consumer loans increased $18,326 or 16.9%. Approximately 83% of this increase occurred within indirect loans, particularly automobiles, where management has been more aggressive in its pricing of these products. Furthermore, real estate mortgages grew $3,551 or 1.6%, with the largest portion of growth occurring within the West Virginia market areas of Mason and Cabell county. During the first nine months of 2002, management has continued to emphasize improving asset quality through analysis of its loan portfolio in both the bank and finance company operations. This emphasis has prompted a $1,239 increase in net charge offs consisting primarily of installment and commercial nonperforming loans. However, the Company's nonperforming loans increased to $9,216 at September 30, 2002 compared to $7,036 at September 30, 2001 and $6,310 at year end 2001. This increase in nonperforming loans was the result of a single commercial line which is in process of collection. The commercial line represented .79% of total loans, increasing the Company's nonperforming loans as a percentage to total loans figure to 1.64% for the quarter ending September 30, 2002 compared to 1.42% at September 30, 2001 and 1.24% at year end 2001. The allowance for loan losses was 1.25% of total loans at September 30, 2002, which included a specific allocation of $450 for the commercial line mentioned above. 11 The 1.25% allowance for loan losses for September 30, 2002 compares to 1.21% at September 30, 2001 and 1.23% at year end 2001. Management has increased the ratio of allowance to total loans based on an increase in nonperforming loans and the continued uncertainty of economic conditions. While management is comfortable that the allowance for loan losses is adequate to absorb probable losses in the loan portfolio, management is prepared to increase the allowance should economic conditions dictate. Total deposit growth during the first nine months of 2002 was primarily in time deposits which increased $33,489 or 12.6%. This growth was partially driven by increases in the Company's brokered certificates of deposit which totaled $7,186 through the first nine months of 2002. To accompany time deposit growth, the Company also had strong growth in savings and interest-bearing demand deposits which increased $17,581 or 13.3%. This growth, primarily in the Company's public fund NOW and Gold Club accounts, is related to the changing interest rate environment which has influenced customers to maintain their funds in more short-term, highly liquid products such as the Bank's NOW transaction account. In addition, non-interest bearing demand deposits have declined $297 or .5% during the same period. Management has utilized the total deposit growth to help fund the growth in loans and to reduce securities sold under agreements to repurchase. Other borrowed funds are primarily advances from the Federal Home Loan Bank, which are used to fund loan growth or short-term liquidity needs. Other borrowed funds are up slightly by $443 or .5% from December 31, 2001, as management has shifted its focus back to funding loan growth through its traditional retail sources of funds in certificates of deposit since the cost of these retail sources has declined significantly. The decrease in other borrowed funds occurred primarily in overnight borrowings. Additionally, securities sold under agreements to repurchase are down $3,111 from December 31, 2001. Furthermore, on March 26, 2002, the Company completed an $8,500 issuance of trust preferred securities. The proceeds from this issuance were used to enhance the Company's risk-based capital adequacy levels as well as support the growth of additional earning assets, particularly the strong growth in loans. Total shareholders' equity at September 30, 2002 of $49,149 was up by $2,849 as compared to the balance of $46,300 on December 31, 2001. Contributing most to this increase was year-to-date income of $4,014 plus proceeds of $568 from the issuance of common stock through the dividend reinvestment plan less cash dividends paid of $1,729, or $.50 per share year-to-date. While cash dividends represented 43.1% of year-to-date income, dividends net of proceeds from the dividend reinvestment plan represented 28.9% of year-to-date income. Management has continued to utilize the Company's stock repurchase program to meet the demand for DRIP shares as well as other corporate purposes. Year-to-date stock repurchases totaled $402; year-to-date dividend reinvestment plan contributions totaled $846. RESULTS OF OPERATIONS Ohio Valley Banc Corp's net income was $1,410 for the third quarter and $4,014 for the first nine months of 2002, up by 15.6% and 15.3% compared to $1,220 and $3,482 for the same periods in 2001. Comparing year-to-date September 30, 2002 to September 30, 2001, return on assets increased from .80% to .81% and return on equity increased from 10.35% to 11.33%. Third quarter earnings per share was $.41 per share, up 17.1% over last year's $.35 per share. During the first nine months of 2002, 12 earnings per share was $1.16 per share, up 16.0% from last year's $1.00 per share. The primary contributor to the gain in net income was strong net interest income growth which exceeded the third quarter and year-to-date of last year by $745 and $2,859. The third quarter and year-to-date increases to net interest income of 12.2% and 16.8% were primarily due to the declines in total interest expense of $785 or 12.9% and $2,793 or 15.1% versus relatively no change in total interest income due to strong loan growth. Earning assets, driven by loans, increased $58,362 from December 31, 2001 and represented 93.9% of total assets as compared to 93.6% at year end 2001. The declines in interest expense were largely impacted by a 125 basis point decline in the Bank's average funding costs due to the current interest rate environment. As a result, the Company's net interest margin improved to 4.36% for the first nine months of 2002 from 4.28% the prior year. For additional discussion on the Company's rate sensitivity assets and liabilities, please see Item 3, Quantitative and Qualitative Disclosure About Market Risk on page 15. The increases in net interest income for the third quarter and year-to-date periods of 2002 were partially offset by increases to provision expense of $449 and $1,330 for the same periods as compared to 2001. The increases to provision expense were in large part from the significant increases in net charge-offs recognized for the same periods which, as discussed earlier, are necessary to assist management in enhancing asset quality and lowering credit risk associated with the Company's loan portfolio. The increases in net interest income after provision for the third quarter and year-to-date periods of 2002 were partially offset by increases in net noninterest expense of $21 or .6% and $755 or 7.5% for the same periods as compared to 2001. Total noninterest income increased $152 or 11.9% for the third quarter and $368 or 9.8% for the first nine months in 2002 as compared to the same periods in 2001. Contributing most to this gain were earnings from bank owned life insurance contracts, service charge income due to growth in transaction account volume and loan service fees. Total noninterest expense increased $173 or 3.8% and $1,123 or 8.1% for the third quarter and year-to-date periods of 2002 as compared to the same periods in 2001. Contributing most to this third quarter and year-to-date increase were salaries and employee benefits, the Company's largest noninterest expense, which increased $262 or 10.6% and $628 or 8.5%. These increases were related to annual merit increases on employee evaluations, incentive-based compensation and the rising cost of medical insurance. Further impacting the year-to-date results was the second quarter charge off of fraudulent checks with the impact, net of recoveries, being $389 on other noninterest expense. Management continues to actively seek recoveries related to this charge off. The remaining noninterest expense categories have increased minimally from 2001. CAPITAL RESOURCES All of the capital ratio's exceeded the regulatory minimum guidelines as identified in the following table: Company Ratios Regulatory September 30, 2002 December 31, 2001 Minimum ------------------ ----------------- ---------- Tier 1 risk-based capital 10.6% 9.5% 4.00% Total risk-based capital ratio 11.8% 10.7% 8.00% Leverage ratio 8.8% 7.9% 4.00% 13 Cash dividends paid of $1,729 for the first nine months of 2002 represents a 6.0% increase over the cash dividends paid during the same period in 2001. The increase in cash dividends paid is largely due to the increase in the dividend rate paid per share. At September 30, 2002, approximately 73% of the shareholders were enrolled in the dividend reinvestment plan. As part of the Company's stock repurchase program, management has continued to utilize reinvested dividends and voluntary cash to purchase shares on the open market to be redistributed through the dividend reinvestment plan. LIQUIDITY Liquidity relates to the Bank's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert assets to cash and raise funds in the market place. Total cash and cash equivalents, interest-bearing deposits with banks, held-to-maturity securities maturing within one year and securities available-for-sale of $98,539 represented 14.2% of total assets at September 30, 2002. In addition, the Federal Home Loan Bank in Cincinnati offers advances to the Bank which further enhances the Bank's ability to meet liquidity demands. At September 30, 2002, the Bank could borrow an additional $47 million from the Federal Home Loan Bank. The Company experienced an increase of $5,604 in cash and cash equivalents for the nine months ended September 30, 2002. See the condensed consolidated statement of cash flows on page 4 for further cash flow information. CONCENTRATION OF CREDIT RISK The Company maintains a diversified credit portfolio, with real estate loans comprising the most significant portion. Credit risk is primarily subject to loans made to businesses and individuals in central and southeastern Ohio as well as western West Virginia. Management believes this risk to be general in nature, as there are no material concentrations of loans to any industry or consumer group. To the extent possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations. FORWARD LOOKING STATEMENTS Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward looking statements' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as "believes," "anticipates," "expects," and similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, that could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to: changes in political, economic or other factors such as inflation rates, recessionary or expansive trends, and taxes; competitive pressures; fluctuations in interest rates; the level of defaults and prepayment on loans made by the Company; unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise. 14 OHIO VALLEY BANC CORP. MATURITY ANALYSIS
(dollars in thousands) Item 3. Quantitative and Qualitative Disclosure About Market Risk As of September 30, 2002 Principal Amount Maturing in: There- Fair Value 2002 2003 2004 2005 2006 after Total 09/30/02 Rate-Sensitive Assets: Fixed interest rate loans $ 3,647 $ 10,527 $ 12,309 $ 19,603 $ 24,779 $285,583 $356,448 $361,132 Average interest rate 10.60% 10.41% 10.68% 9.75% 8.76% 7.86% 8.23% Variable interest rate loans $ 21,960 $ 28,375 $ 3,188 $ 4,316 $ 6,037 $140,242 $204,118 $205,562 Average interest rate 6.84% 5.86% 5.99% 6.31% 6.52% 6.66% 6.54% Fixed interest rate securities $ 5,249 $ 13,132 $ 17,372 $ 22,906 $ 500 $ 17,114 $ 76,273 $ 79,531 Average interest rate 5.34% 4.64% 5.29% 5.00% 5.63% 6.22% 5.31% Federal funds sold $ 12,300 $ 12,300 $ 12,300 Average interest rate 1.65% 1.65% Other interest-bearing assets $ 1,495 $ 1,495 $ 1,495 Average interest rate 1.13% 1.13% Total Rate-Sensitive Assets $ 44,651 $52,034 $ 32,869 $ 46,825 $ 31,316 $442,939 $650,634 $660,020 Average interest rate 5.35% 6.47% 7.38% 7.11% 8.28% 7.42% 7.22% Rate-Sensitive Liabilities: Noninterest-bearing checking $ 7,676 $ 6,632 $ 5,730 $ 4,950 $ 4,277 $ 27,173 $ 56,438 $ 56,438 Savings & Interest-bearing checking $ 23,760 $ 19,931 $ 16,731 $ 14,054 $ 11,814 $ 63,724 $150,014 $150,014 Average interest rate 1.90% 1.91% 1.92% 1.93% 1.94% 2.00% 1.95% Time deposits $ 52,338 $139,598 $ 57,802 $ 30,675 $ 10,448 $ 9,321 $300,182 $305,388 Average interest rate 3.73% 3.92% 4.12% 4.36% 4.87% 5.21% 4.24% Fixed interest rate borrowings $ 4,986 $ 17,222 $ 17,587 $ 17,214 $ 14,606 $ 19,184 $ 90,799 $ 95,587 Average interest rate 4.48% 5.16% 4.96% 4.92% 5.22% 6.89% 5.48% Variable interest rate borrowings $ 40,163 $ 40,163 $ 40,163 Average interest rate 2.26% 2.26% Total Rate-Sensitive Liabilities $128,923 $183,383 $ 97,850 $ 66,893 $ 41,145 $119,402 $637,596 $647,590 Average interest rate 2.74% 3.68% 3.65% 3.67% 3.65% 2.58% 3.38% As of December 31, 2001 Principal Amount Maturing in: There- Fair Value 2002 2003 2004 2005 2006 after Total 12/31/01 Total Rate-Sensitive Assets $ 97,688 $ 17,119 $ 31,670 $ 40,920 $ 30,418 $370,285 $588,100 $595,178 Average interest rate 5.70 9.20% 8.82% 8.59% 8.26% 7.74% 7.59% Total Rate-Sensitive Liabilities $241,620 $102,787 $ 58,432 $ 40,300 $ 33,796 $104,056 $580,991 $586,897 Average interest rate 4.13% 4.17% 3.69% 3.57% 3.53% 2.46% 3.72% (Continued) 15
MATURITY ANALYSIS ================================================================================ Item 3. Quantitative and Qualitative Disclosure About Market Risk (continued) Based on the rate sensitivity analysis, the Company is liability sensitive, which would benefit the Company in a declining rate environment. Based on low interest rates, management has taken steps to guard against rising interest rates. Management has been offering fixed rate mortgage loans to be sold on the secondary market. Historically, the Company originated all mortgage loans to be held in its own portfolio. Furthermore, management has extended the average maturity of its funding sources by offering longer term certificates of deposit and borrowing wholesale funds for longer time periods. The result of the above strategies that were implemented starting last year is less exposure to interest rate risk. Item 4. Controls and Procedures Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of Ohio Valley Banc Corp.'s management, including our Chief Executive Officer and Treasurer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Treasurer have concluded that the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by Ohio Valley Banc Corp. in reports that it files or submits under the Exchange Acts is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Treasurer have concluded that there were no significant changes in Ohio Valley Banc Corp.'s internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Part II - Other Information Item 1 - Legal Proceedings - -------------------------- None Item 2 - Changes in Securities - ------------------------------ None Item 3 - Defaults Upon Senior Securities - ---------------------------------------- None Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None Item 5 - Other Information - -------------------------- None Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- B. The Company filed a report on Form 8-K dated July 11, 2002 related to the issuance of a news release announcing its earnings for the second quarter and year-to-date periods ending June 30, 2002. OHIO VALLEY BANC CORP --------------------- Date November 14, 2002 /s/ Jeffrey E. Smith ----------------- --------------------- Jeffrey E. Smith President and Chief Executive Officer Date November 14, 2002 /s/ Larry E. Miller, II ----------------- ------------------------ Larry E. Miller, II Senior Vice President and Treasurer ================================================================================ 16 Certifications of Principal Executive Officer and Principal Financial Officer CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q I, Jeffrey E. Smith, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Ohio Valley Banc Corp.; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report are our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Signature and Title: /s/ Jeffrey E. Smith Date: November 14, 2002 -------------------- ----------------- Jeffrey E. Smith President and CEO Page 17 Certifications of Principal Executive Officer and Principal Financial Officer CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q I, Larry E. Miller, II, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Ohio Valley Banc Corp.; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report are our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Signature and Title: /s/ Larry E. Miller, II Date: November 14, 2002 ----------------------- ----------------- Larry E. Miller, II Senior VP and Treasurer Page 18 EXHIBIT INDEX ------------- EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Ohio Valley Banc Corp. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey E. Smith, President and Chief Executive Officer of the Company, certify, pursuant to Title 18, United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1924; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date November 14, 2002 /s/ Jeffrey E. Smith ------------------- ----------------------- Jeffrey E. Smith President and Chief Executive Officer In connection with the Quarterly Report of Ohio Valley Banc Corp. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Larry E. Miller, II, Senior Vice President and Treasurer of the Company, certify, pursuant to Title 18, United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1924; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date November 14, 2002 /s/ Larry E. Miller, II ------------------- ------------------------ Larry E. Miller, II Senior Vice President and Treasurer Page 19 -----END PRIVACY-ENHANCED MESSAGE-----