10-K 1 sec10k123104.txt FORM10-K 12312004 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, 2004 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. Yes __X__ 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. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes __X__ No _____ The aggregate market value of the common shares of the Registrant held by non-affiliates computed by reference to the average bid and asked price of the common shares as of June 30, 2004 was $108,077,532. The number of common shares of the Registrant outstanding as of February 28, 2004 was 3,430,859 common shares. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 2004 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, 7, 7A and 8. (2) Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 13, 2005 are incorporated by reference into Part III,Items 10, 11, 12, 13 and 14. Exhibit Index begins on page 24. PART I ITEM 1 - BUSINESS Holding Company --------------- Ohio Valley Banc Corp ("Ohio Valley") is a financial holding company that was incorporated under the laws of the State of Ohio on January 8, 1992. Ohio Valley is registered under the Bank Holding Company Act of 1956, as amended ("BHC Act"). The principal executive offices of Ohio Valley are located at 420 Third Avenue, Gallipolis, Ohio 45631. Ohio Valley's common shares are listed on The NASDAQ National Market under the symbol "OVBC". Ohio Valley's business is incident to its 100% ownership of the outstanding equity of The Ohio Valley Bank Company (the "Bank"), Loan Central, Inc. ("Loan Central") and Ohio Valley Financial Services Agency, LLC ("Ohio Valley Financial Services"). Ohio Valley and its subsidiaries are collectively referred to as the "Company." Bank Subsidiary --------------- A substantial portion of Ohio Valley's revenue is derived from cash dividends paid by the Bank. 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 is primarily engaged in commercial and retail banking. The Bank is a full-service financial institution offering a blend of commercial, consumer and agricultural banking services within central and southeastern Ohio as well as western West Virginia. 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. The Bank's deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). 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. The Bank presently has sixteen offices, all of which offer automatic teller machines ("ATM's"). Seven of these offices also offer drive-up services. The Bank accounted for substantially all of Ohio Valley's consolidated assets at December 31, 2004. Non-bank Subsidiary ------------------- Loan Central was incorporated on February 1, 1996 under the laws of the State of Ohio governing finance companies. Loan Central is engaged in consumer finance, offering smaller balance personal and mortgage loans to individuals with higher credit risk history. Loan Central presently has five offices within southeastern Ohio. 2 Financial Services Subsidiaries ------------------------------- Ohio Valley Financial Services was formed on January 10, 2000 and is engaged in selling life insurance. [To who? More about business?] Ohio Valley Financial Services was approved under the guidelines of the State of Ohio Department of Insurance. Ohio Valley also holds a non-majority equity interest in three insurance businesses. The first, BSG Title Services, LLC, was formed on February 28, 2001. The second, OVB Title Services, LLC, was formed on October 1, 2004. Both insurance agencies are engaged primarily in title services related to real estate, commercial and consumer loan customers. The third business is ProAlliance Corp., an insurance company formed on March 18,2004. ProAlliance Corp., previouly a subsidiary of ProFinance Corp., was the result of a dividend to the owners of ProCentury Corp., formerly known as ProFinance Corp., prior to an initial public offering of ProCentury Corp. on April 26, 2004.ProAlliance Corp. is engaged primarily in specialty property and casualty insurance coverage. All investments were approved under the guidelines of the State of Ohio Department of Insurance. Variable Interest Entities -------------------------- Ohio Valley owns two special purpose entities - Ohio Valley Statutory Trusts I and II. Prior to 2003, Ohio Valley classified the trusts as wholly owned subsidiaries and consolidated Ohio Valley's ownership of the trust preferred securities in Ohio Valley's financial statements as liabilities. Under accounting guidance outlined by Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, adopted in 2003, the trusts are no longer consolidated. As a result, Ohio Valley does not report the trust preferred securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by Ohio Valley and held by the trusts. Further detail on this accounting guidance and the deconsolidation of Ohio Valley Statutory Trusts I and II is located in Ohio Valley's 2004 Annual Report to Shareholders under "Note A - Summary of Significant Accounting Policies" and "Note I - Subordinated Debentures and Trust Preferred Securities." All such information is incorporated herein by reference. Reference is hereby made to Item 1(E), "Statistical Disclosure" and Item 8 of this Form 10-K for financial information pertaining to Ohio Valley's business through its subsidiaries as required by Item 101 of Regulation S-K. Competition ----------- The financial services industry 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 generating a growing market presence. Loan Central's market presence further strengthens Ohio Valley's ability to compete in the Gallia, Jackson and Pike Counties by serving a consumer base which may not meet the Bank's credit standards. Loan Central also operates in the Ohio counties of Lawrence and Scioto, which are outside the Bank's primary market area. 3 Additionally, Ohio Valley Financial Services sells life insurance which further strengthens the blend of services available to Ohio Valley's consumer base. The principal factors of competition for Ohio Valley's banking business 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 Ohio Valley 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 individuals, businesses and corporations which are located primarily in southeastern Ohio and western West Virginia. 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, 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 in its exposure to higher average dollars per loan as compared with other types of lending (i.e., single-family residential mortgage lending, installment lending and credit card loans). The payment experience on commercial loans is typically dependent on adequate cash flows to service both interest and principal due. Thus, commercial loans may be more sensitive to adverse conditions in the economy generally or adverse conditions in a specific industry. The Bank and Loan Central make installment credit available to customers in their primary market area of southeastern Ohio and portions of western West Virginia. Credit approval for consumer loans requires demonstration of sufficient 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 Bank and Loan Central to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring the performance of his or her respective consumer portfolio and updating loan personnel. The Bank and Loan Central make credit life insurance and health and accident insurance available to all qualified borrowers thus reducing their risk of loss when a borrower's income is terminated or interrupted. The Bank and Loan Central 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 those applied to other consumer loans. 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 are 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 and portions of western West Virginia. The Bank generally requires the amount of a residential real estate loan 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 third quarter of 2002, the Bank began selling a large portion of its new fixed-rate real estate loan originations to the Federal Home Loan Mortgage Corporation ("Freddie Mac") to enhance customer service and loan pricing. Secondary market sales of these real estate loans, 4 which have fixed rates with fifteen to thirty year terms, assisted in minimizing the Bank's exposure to interest rate risk as rates began to rise in 2004. 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. Consolidated revenues from loans accounted for 77.35%, 81.07% and 82.29% of total consolidated revenues in 2004, 2003 and 2002, respectively. Revenues from interest and dividends on securities accounted for 7.13%, 7.23% and 7.16% of total consolidated revenues in 2004, 2003 and 2002, respectively. To continue the expansion of the Bank's market presence and further enhance customer service, the Bank began a phase of SuperBank branch openings in December 1996. From 1996 to 2001, the Bank opened eight SuperBank facilities within supermarkets and Wal-Mart stores. These new branches service the market areas of Gallia, Jackson, Meigs and Lawrence counties of Ohio as well as the growing Kanawha and Cabell counties of West Virginia. Furthermore, with the advent of the Gramm-Leach-Bliley Act, Ohio Valley has expanded its business beyond banking services. In October 2000, Ohio Valley participated in the purchase of ProCentury Corp., a property and casualty insurance underwriter and reinsurance company. Ohio Valley's interest in ProCentury Corp. was sold in 2004 through an initial public offering that yielded an after-tax gain of $1,625. ProAlliance Corp. was formed as a result of a dividend paid to the owners of ProCentury Corp. prior to this initial public offering in 2004.Furthermore, Ohio Valley formed Ohio Valley Financial Services and two title insurance agencie, BSG Title Services, LLC and OVB Title Services, LLC. The financial services industry is likely to become more competitive as further technological advances enable more companies to provide financial services on a more efficient and convenient basis. Supervision and Regulation -------------------------- The following is a summary of certain statutes and regulations affecting Ohio Valley as well as the Bank and Loan Central. The summary is qualified in its entirety by reference to such statutes and regulations. Regulation of Bank Holding Company Ohio Valley is subject to the requirements of 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"). The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to: o assess civil money penalties; 5 o issue cease and desist or removal orders; and o require that a bank holding company divest subsidiaries (including its banking subsidiaries). In general, the Federal Reserve Board may initiate enforcement action for violations of laws and regulations and unsafe or unsound practices. Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank. The BHC Act requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to: o acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it; o acquire all or substantially all of the assets of another bank or bank holding company; or o merge or consolidate with any other bank holding company. Transactions with Affiliates, Directors, Executive Officers and Shareholders Section 23A and 23B of the Federal Reserve Act and Regulation W restrict transactions by banks and their subsidiaries with their affiliates. An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank. Generally, Sections 23A and 23B and Regulation W: (1) limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of that bank's capital stock and surplus (i.e., tangible capital), (2) limit the extent to which a bank or its subsidiaries may engage in "covered transactions" with all affiliates to 20% of that bank's capital stock and surplus, and (3) require that all such transactions be on terms substantially the same, or at least as favorable to the bank subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of transactions. A bank's authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms substantially the same as those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank's capital position, and specified approval procedures must be followed in making loans which exceed specified amounts. 6 Regulation of State Chartered Banks As an Ohio state-chartered bank that is not a member of the Federal Reserve Bank, the Bank is supervised and regulated by the Ohio Division of Financial Institutions and the FDIC. The Bank's deposits are insured up to applicable limits by the FDIC and the Bank is subject to the applicable provisions of the Federal Deposit Insurance Act and the regulations of the FDIC. Various requirements and restrictions under the laws of the United States and the State of Ohio and the State of West Virginia affect the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that 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. Holding Company Activities In November of 1999, the Gramm-Leach-Bliley Act ("GLB Act") was enacted, amending the BHC Act and modernizing the laws governing the financial services industry. The GLB Act authorized the creation of financial holding companies, a new type of bank holding company with powers exceeding those of traditional bank holding companies. Ohio Valley 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, including any activity 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 a broad array of 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 Securities and Exchange Commission (the "SEC") and state insurance regulators. The GLB 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. Loan Central is supervised and regulated by the State of Ohio Department of Financial Institutions, Division of Consumer Finance. Ohio Valley's insurance company investments, ProAlliance Corp., Ohio Valley Financial Services, BSG Title Services, LLC and OVB Title Services, LLC are all supervised and regulated by the State of Ohio Department of Insurance. The insurance laws and regulations applicable to insurance agencies require education and licensing of individual agents and agencies, require reports and impose business conduct rules. 7 The GLB Act provides that 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. Capital Requirements The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies. 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) to be considered adequately capitalized is 8%. At least 4.0 percentage points is to be comprised of common shareholders' 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 consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder ("Tier 2 Capital") may consist of certain amounts of mandatory convertible debt securities, subordinated debt, preferred stock not qualifying as Tier 1 Capital 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 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. Ohio Valley and the Bank currently satisfy all applicable 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. 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. 8 Limits on Dividends 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 that may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects Ohio Valley to serve as a source of strength to the Bank, which may require it to retain capital for further investments in the Bank, rather than for dividends for shareholders of Ohio Valley. The Bank may not pay dividends to Ohio Valley if, after paying such dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. The Bank must have the approval of its regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of its current year's net profits and retained net profits for the preceding two years, less required transfers to surplus. Payment of dividends by the Bank may be restricted at any time at the discretion of its regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for the Bank. These provisions could have the effect of limiting Ohio Valley's ability to pay dividends on its outstanding common shares. Deposit Insurance Assessments 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. The assessment currently ranges from 1.44 to 28.44 cents per $100 of domestic deposits. The Bank is currently paying an assessment rate of 1.44 cents per $100 of domestic deposits. 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. Sarbanes-Oxley Act of 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to 9 protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. The proposed changes are intended to allow shareholders to monitor the performance of companies and directors more easily and efficiently. The Sarbanes-Oxley Act addresses, among other matters: audit committees; corporate responsibility for financial reports; a requirement that chief executive and chief financial officers forfeit certain bonuses and profits if their companies issue an accounting restatement as a result of misconduct; a prohibition on insider trading during pension fund black-out periods; disclosure of off-balance sheet transactions; conditions for the use of financial information not in accordance with generally accepted accouting principles; a prohibition on personal loans to directors and executive officers (excluding loans by insured depository institutions that are subject to the insider lending restrictions of the Federal Reserve Act); expedited filing requirements for stock transaction reports by officers and directors; the formation of the Public Accounting Oversight Board; auditor independence; and various increased criminal penalties for violations of securities laws. As mandated by the Sarbanes-Oxley Act, the SEC has adopted rules and regulations governing, among other issues, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. The NASDAQ Stock Market has also adopted corporate governance rules. Ohio Valley's Board of Directors has taken a series of actions to strengthen and improve Ohio Valley's corporate governance practices in light of the rules of the SEC and The NASDAQ Stock Market. Employees --------- As of December 31, 2004, Ohio Valley and its subsidiaries employed 270 full-time equivalent employees. Management considers its relationship with its employees to be good. Other Information ----------------- Management anticipates no material effect upon the capital expenditures, earnings and competitive position of the Company by reason of any laws regulating or protecting the environment. Ohio Valley believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. Ohio Valley, therefore, anticipates no material capital expenditures for environmental control facilities in its current fiscal year or for the foreseeable future. The Bank and Loan Central 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 Ohio Valley 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. 10 Available Information --------------------- Interested readers can access Ohio Valley's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through Ohio Valley's Internet website at www.ovbc.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate the information contained on Ohio Valley's website into this Annual Report on Form 10-K). These reports can be accessed free of charge from Ohio Valley's website as soon as reasonably practicable after Ohio Valley electronically files such materials with, or furnishes them to, the SEC. Financial Information About Foreign and Domestic Operations and Export Sales ---------------------------------------------------------------------------- Ohio Valley'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 Ohio Valley as required under the SEC's Industry Guide 3, "Statistical Disclosure by Bank Holding Companies", or a specific reference as to the location of the required disclosures in Ohio Valley's 2004 Annual Report to Shareholders which are hereby incorporated herein by reference. 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, 2004, 2003 and 2002 is incorporated herein by reference to the information appearing under the caption "Table I - Consolidated Average Balance Sheet & Analysis of Net Interest Income", within "Management's Discussion and Analysis of Operations" located on page 30 of Ohio Valley's 2004 Annual Report to Shareholders. C. Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2004, 2003 and 2002 is incorporated herein by reference to the information appearing under the caption "Table II - Rate Volume Analysis of Changes in Interest Income & Expense", within "Management's Discussion and Analysis of Operations" located on page 32 of Ohio Valley's 2004 Annual Report to Shareholders. 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. Changes not due solely to either a change in volume or a change in rate have been allocated proportionally to both changes due to volume and rate. 11 II. INVESTMENT PORTFOLIO A. Types of Securities - Total securities on the balance sheet are comprised of the following classifications at December 31: (dollars in thousands) 2004 2003 2002 ---- ---- ---- Securities Available-for-Sale U.S. Government agency securities.. $ 20,087 $ 37,785 $ 66,838 Mortgage-backed securities......... 48,647 33,364 3,425 FHLB stock......................... 5,421 5,203 5,001 --------- --------- --------- Total securities available-for-sale $ 74,155 $ 76,352 $ 75,264 ========= ========= ========= Securities Held-to-Maturity Obligations of states of the U.S. and political subdivisions....... $ 11,910 $ 12,724 $ 13,821 Mortgage-backed securities......... 84 111 169 --------- --------- --------- Total securities held-to-maturity $ 11,994 $ 12,835 $ 13,990 ========= ========= ========= B. Information required by this item is incorporated herein by reference to the information appearing under the caption "Table III - Securities", within "Management's Discussion and Analysis of Operations" located on page 33 of Ohio Valley's 2004 Annual Report to Shareholders. C. Excluding obligations of the U.S. Government and its agencies, no concentration of securities exists of any issuer that is greater than 10% of shareholders' equity of Ohio Valley. 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) 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- Real estate loans $227,234 $217,636 $224,212 $226,212 $209,724 Commercial loans 226,058 220,724 205,508 173,154 139,826 Consumer loans 146,965 134,720 128,662 108,437 98,013 All other loans 317 624 1,179 857 740 -------- -------- -------- -------- -------- $600,574 $573,704 $559,561 $508,660 $448,303 ======== ======== ======== ======== ======== B. Maturities and Sensitivities of Loans to Changes in Interest Rates - Information required by this item is incorporated herein by reference to the information appearing under the caption "Table VII - Maturity and Repricing Data of Loans", within "Management's Discussion and Analysis of Operations" located on page 35 of Ohio Valley's 2004 Annual Report to Shareholders. C. 1. Risk Elements - Gross interest income that would have been recorded on loans that were troubled debt restructurings, nonaccrual or past due 90 days is estimated to be $121,000 for the fiscal year ending December 31, 2004. Additional information required by this item is incorporated herein by reference to the information appearing under the caption "Table VI - Summary of Nonperforming and Past Due Loans", within "Management's Discussion and Analysis of Operations" located on page 35 of Ohio Valley's 2004 Annual Report to Shareholders. 12 2. Potential Problem Loans - At December 31, 2004, there are approximately $1,986,000 of loans, which are not included in "Table VI - Summary of Nonperforming and Past Due Loans" within "Management's Discussion and Analysis of Operations" located on page 35 of Ohio Valley's 2004 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 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, 2004, 2003 or 2002. 4. Loan Concentrations - As of December 31, 2004, there were no concentrations of loans greater than 10% of total loans which are not otherwisedisclosed as a category of loans pursuant to Item III.A. above. Also refer to the Consolidated Financial Statements regarding concentrations of credit risk found within Note A of the Notes to the Consolidated Financial Statements of Ohio Valley's 2004 Annual Report to Shareholders incorporated herein by reference. 5. No 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, 2004, there were no other interest-bearing assets that would be required to be disclosed under Item III.C. if such assets were loans. 13 IV. SUMMARY OF LOAN LOSS EXPERIENCE A. The following schedule presents an analysis of the allowance for loan losses for the fiscal years ended December 31: (dollars in thousands) 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- Balance, beginning of year $7,593 $7,069 $6,251 $5,385 $5,055 Loans charged-off: Real estate 823 1,110 636 659 92 Commercial 1,661 2,267 2,272 620 61 Consumer 2,267 2,661 2,656 1,903 1,642 -------- -------- -------- -------- ------- Total loans charged-off 4,751 6,038 5,564 3,182 1,795 Recoveries of loans: Real estate 583 279 119 69 4 Commercial 556 1,057 158 17 --- Consumer 843 887 635 459 231 -------- ------- -------- -------- ------- Total recoveries of loans 1,982 2,223 912 545 235 Net loan charge-offs (2,769) (3,815) (4,652) (2,637) (1,560) Provision charged to operations 2,353 4,339 5,470 3,503 1,890 -------- ------- -------- -------- ------- Balance, end of year $7,177 $7,593 $7,069 $6,251 $5,385 ======== ======= ======== ======== ======= Ratio of Net Charge-offs to Average Loans outstanding .47% .68% .86% .56% .36% ======== ======= ======== ======== ======= Ratio of Allowance for Loan Losses to Non-Performing Assets 142.46% 140.66% 83.16% 94.73% 80.70% ======== ======= ======== ======== ======= Discussion on factors which influenced management in determining the amount of additions charged to provision expense is incorporated herein by reference to the information appearing under the caption "Loans" within "Management's Discussion and Analysis of Operations" located on page 33 of Ohio Valley's 2004 Annual Report to Shareholders. B. Allocation of the Allowance for Loan Losses - Information required by this item is incorporated herein by reference to the information appearing under the caption "Table V - Allocation of the Allowance for Loan Losses", within "Management's Discussion and Analysis of Operations" located on page 35 of Ohio Valley's 2004 Annual Report to Shareholders. V. DEPOSITS A. Deposit Summary - Information required by this item is incorporated herein by reference to the information appearing under the caption "Table I - Consolidated Average Balance Sheet & Analysis of Net Interest Income", within "Management's Discussion and Analysis of Operations" located on page 30 of Ohio Valley's 2004 Annual Report to Shareholders. 14 C.&E. Foreign Deposits - There were no foreign deposits outstanding at December 31, 2004, 2003, or 2002. D. Schedule of Maturities - The following table provides a summary of total time deposits by remaining maturities for the fiscal year ended December 31, 2004: 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 ................. $ 14,929 $ 8,074 $ 31,677 $ 46,005 Other time deposits of $100,000 or greater ................. 1,249 765 2,075 2,975 -------- ------- -------- -------- Total time deposits of $100,000 or greater ................. $ 16,178 $ 8,839 $ 33,752 $ 48,980 ======== ======= ======== ======== VI. RETURN ON EQUITY AND ASSETS Information required by this section is incorporated herein by reference to the information appearing under the caption "Table X - Key Ratios" within "Management's Discussion and Analysis of Operations" located on page 40 of Ohio Valley's 2004 Annual Report to Shareholders. VII. SHORT-TERM BORROWINGS The following schedule is a summary of securities sold under agreements to repurchase at December 31: (dollars in thousands) 2004 2003 2002 ---- ---- ---- Balance outstanding at period-end .......... $ 39,753 $ 24,018 $ 33,052 -------- -------- -------- Weighted average interest rate at period-end 1.77% .80% 1.08% -------- -------- -------- Average amount outstanding during year ..... $ 24,743 $ 23,396 $ 23,090 -------- -------- -------- Approximate weighted average interest rate during the year ......................... 1.12% .87% 1.56% -------- -------- -------- Maximum amount outstanding as of any month-end ............................... $ 39,753 $ 35,213 $ 33,052 -------- -------- -------- Forward-Looking Information Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act), including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by Ohio Valley with the SEC, in press releases, and in oral and written statements made by or with the approval of Ohio Valley which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Ohio Valley or its management or its board 15 of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying those statements. Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including: (i) changes in political, economic or other factors such as inflation rates, recessionary or expansive trends, and taxes; (ii) competitive pressures; (iii) fluctuations in interest rates; (iv) the level of defaults and prepayment on loans made by the Company; (v) unanticipated litigation, claims, or assessments; (vi) fluctuations in the cost of obtaining funds to make loans; and (vii) regulatory changes. There is also the risk that we incorrectly analyze these risks and forces, or that the strategies we develop to address them are unsuccessful. Forward-looking statements speak only as of the date on which they are made and Ohio Valley undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to Ohio Valley or any person acting on our behalf are qualified by the cautionary statements in this selection. ITEM 2 - PROPERTIES Ohio Valley does not own or lease any real or personal property. The principal executive offices of Ohio Valley and the Bank are located at 420 Third Avenue, Gallipolis, Ohio. The Bank owns six financial service centers located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.) and Columbus (Franklin Co.), all in Ohio. The Bank leases nine additional financial service centers located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Pomeroy (Meigs Co.), and South Point (Lawrence Co.) in Ohio and Point Pleasant (Mason Co.), Huntington (Cabell Co.), Milton (Cabell Co.) and Cross Lanes (Kanawha Co.) in West Virginia. The Bank also owns and operates twenty five ATMs, including ten off-site ATMs. Furthermore, the Bank owns a facility and leases a facility in Gallipolis (Gallia Co.), Ohio which are used for additional office space. The Bank also owns two facilities in Gallipolis (Gallia Co.), Ohio and Point Pleasant (Mason Co.), West Virginia which are leased to third parties. Loan Central conducts its consumer finance operations through five offices located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.), South Point (Lawrence Co.) and Wheelersburg (Scioto Co.), all in Ohio. All of these facilities are leased by Loan Central, except for the Wheelersburg (Scioto Co.) facility. Loan Central leases a portion of its Wheelersburg (Scioto Co.) facility to a third party. Ohio Valley Financial Services also conducts business within Loan Central's Jackson (Jackson Co.) facility. Management considers all of these properties to be satisfactory for the Company's current operations. The Bank, Loan Central and Ohio Valley Financial Services' leased facilities are all subject to commercially standard leasing arrangements. Information concerning the value of the Company's owned and leased real property and a summary of future lease payments is contained in "Note E - Premises and Equipment" to the Company's consoldiated financial statements for the fiscal year ended December 31, 2004, located on page 17 of Ohio Valley's 2004 Annual Report to Shareholders. 16 ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings against Ohio Valley or any of its subsidiaries, other than ordinary, routine 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 2004 to a vote of security holders, by solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, the following table lists the names and ages of the executive officers of Ohio Valley as of March 16, 2005, the positions presently held by those individuals with Ohio Valley and its principal subsidiaries and their individual business experience during the past five years. Current Position and Name and Age Business Experience During Past 5 Years ------------------ --------------------------------------- Jeffrey E. Smith, 55 President and Chief Executive Officer of Ohio Valley and the Bank Sue Ann Bostic, 63 Vice President of Ohio Valley beginning 1996; Senior Vice President, Administrative Group of the Bank since 1996. Cherie A. Barr, 38 Vice President of Ohio Valley beginning 1998; President of Loan Central since 2000, President and Secretary of Loan Central from 1999 to 2000. Katrinka V. Hart, 46 Senior Vice President since 2003 and Vice President from 1995 to 2003 of Ohio Valley; Executive Vice President and Risk Management Officer since 2003, Senior Vice President, Retail Bank Group from 1995 to 2003 of the Bank. Mario P. Liberatore, 59 Vice President of Ohio Valley beginning 1997, Senior Vice President, West Virginia Bank Group of the Bank beginning 1997. E. Richard Mahan, 59 Senior Vice President and Secretary of Ohio Valley beginning 2000, Executive Vice President and Secretary of the Bank beginning 2000; Senior Vice President of Ohio Valley from 1999 to 2000, Executive Vice President of the Bank from 1999 to 2000. Larry E. Miller, II, 40 Senior Vice President and Treasurer of Ohio Valley beginning 2000, Executive Vice President and Treasurer of the Bank beginning 2000; Senior Vice President of Ohio Valley from 1999 to 2000, Executive Vice President of the Bank from 1999 to 2000. David L. Shaffer, 46 Vice President of Ohio Valley beginning 2000, Senior Vice President, Commercial Bank Group of the Bank beginning 2000; Vice President, Commercial Lending of the Bank from 1999 to 2000. 17 Current Position and Name and Age Business Experience During Past 5 Years ------------------ --------------------------------------- Sandra L. Edwards, 57 Vice President of Ohio Valley 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. Scott W. Shockey, 35 Vice President and Chief Financial Officer since December 2004 and Assistant Treasurer from 2001 to December 2003 of Ohio Valley; Senior Vice President since December 2004, Chief Financial Officer since 2001, Vice President from 2001 to December 2003, and Assistant Vice President and Comptroller from 1999 to 2001 of the Bank. Jennifer L. Osborne, 52 Vice President of Ohio Valley since 2004; Senior Vice President, Retail Lending Group since 2004 and Vice President, Retail Lending Group from 1999 to 2003 of the Bank. Tom R. Shepherd, 38 Vice President of Ohio Valley since 2004; Senior Vice President, Retail Deposit Group since 2004, Vice President, Director of Marketing, Product Management and Retail Development from 2001 to 2003, and Vice President, Marketing from 1998 to 2000 of the Bank. Cindy H. Johnston, 44 Assistant Secretary of Ohio Valley since 1995; Assistant Vice President since 2004 and Assistant Secretary since 1995 of the Bank. Paula W. Salisbury, 46 Assistant Secretary of Ohio Valley since 1995; Assistant Vice President since 2004 and Assistant Secretary since 1995 of the Bank. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required under this Item 5 by Items 201(a) through (c) of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions "Summary of Common Stock Data" located on page 28 of Ohio Valley's 2004 Annual Report to Shareholders and "Note P -- Regulatory Matters" to the Company's Consolidated Financial Statements for the fiscal year ended December 31, 2004 located on page 23 of Ohio Valley's 2004 Annual Report to Shareholders. The closing price of Ohio Valley's common shares on the NASDAQ National Market on March 15, 2005 was $33.21. 18 In response to the information required under this Item 5 by Item 701 of SEC Regulation S-K, Ohio Valley did not sell any of its securities without registration during its 2004 fiscal year. Pursuant to Item 703 of SEC Regulation S-K, the following table provides information on Ohio Valley's purchases of its common shares during the three fiscal months ended December 31, 2004:
Maximum Number Total Number of Shares of Shares That May Total Number of Average Purchased as Part of Yet Be Purchased Common Shares Price Paid per Publicly Announced Under Publicly Announced Period Purchased Common Share Plans or Programs Plans or Programs -------------------------- ------------- -------------- ---------------------- -------------------------- October 1 through October 31, 2004 ............. - - - - - - - - - 107,091 November 1 through November 30, 2004 ............ - - - - - - - - - 107,091 December 1 through December 31, 2004 ............ 31,260 $32.50 31,260 75,831 ------------- ------------- ------------- ------------- TOTAL 31,260 $32.50 31,260 75,831 ============= ============= ============= =============
ITEM 6 - SELECTED FINANCIAL DATA The information required under this Item 6 by Item 301 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption "Selected Financial Data" located on page 5 of Ohio Valley's 2004 Annual Report to Shareholders. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required under this Item 7 by Item 303 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption "Management's Discussion and Analysis of Operations" located on pages 29-40 of Ohio Valley's 2004 Annual Report to Shareholders. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required under this Item 7A by Item 305 of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions "Interest Rate Sensitivity and Liquidity" and "Interest Rate Sensitivity -- Table VIII" and found within "Management's Discussion and Analysis of Operations" located on pages 37 and 38, respectively, of Ohio Valley's 2004 Annual Report to Shareholders. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Ohio Valley's consolidated financial statements and related notes are listed below and incorporated herein by reference to pages 6-26 of Ohio Valley's 2004 Annual Report to Shareholders. The supplementary "Consolidated Quarterly 19 Financial Information (unaudited)" and the "Report of Independent Registered Public Accounting Firm on Financial Statements" located on pages 26 and 27, respectively, of Ohio Valley's 2004 Annual Report to Shareholders are also incorporated herein by reference. Consolidated Statements of Condition as of December 31, 2004 and 2003 Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Notes to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Financial Statements ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Ohio Valley has not changed accountants during the fiscal years ended December 31, 2004 and December 31, 2003. Furthermore, during the fiscal years ended December 31, 2004 and December 31, 2003, there were no disagreements between Crowe Chizek and Company LLC ("Crowe Chizek") on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Crowe Chizek's satisfaction, would have caused Crowe Chizek to make reference to the subject matter of the disagreement in connection with its reports on Ohio Valley's consolidated financial statements for such periods. ITEM 9A - CONTROLS AND PROCEDURES Disclosure Controls and Procedures ---------------------------------- With the participation of the President and Chief Executive Officer (the principal executive officer) and the Vice Presient and Chief Financial Officer (the principal financial officer) of Ohio Valley, Ohio Valley's management has evaluated the effectiveness of Ohio Valley's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Annual Report on Form 10-K. 20 Based on that evaluation, Ohio Valley's President and Chief Executive Officer and Vice Presient and Chief Financial Officer have concluded that: o information required to be disclosed by Ohio Valley in this Annual Report on Form 10-K would be accumulated and communicated to Ohio Valley's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; o information required to be disclosed by Ohio Valley in this Annual Report on Form 10-K would be recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and o Ohio Valley's disclosure controls and procedures are effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that material information relating to Ohio Valley and its consolidated subsidiaries is made known to them, particularly during the period for which the periodic reports of Ohio Valley, including this Annual Report on Form 10-K, are being prepared. Internal Control Over Financial Reporting ----------------------------------------- Pursuant to the SEC's Exemptive Order in Release No. 34-50754 (November 30, 2004), management's annual report on internal control over financial reporting required by Item 308(a) of SEC Regulation S-K and the related attestation report of the registered public accounting firm required by Item 308(b) of SEC Regulation S-K are not included herein. Ohio Valley will file this information with the SEC by an amendment to this Form 10-K no later than May 2, 2005. There were no changes in Ohio Valley's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Ohio Valley's fiscal quarter ended December 31, 2004, that have materially affected, or are reasonably likely to materially affect, Ohio Valley's internal control over financial reporting. ITEM 9B - OTHER INFORMATION The following information is disclosed pursuant to Item 5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers of Form 8-K: Election of Director -------------------- The Board of Directors of Ohio Valley elected Harold A. Howe as a director of Ohio Valley on January 18, 2005. Mr. Howe, age 54, has served as the President of Ohio Valley Financial Services since 2000 and as a member of the Board of Directors of the Bank since 1998. Mr. Howe is self-employed in the real estate investment and rental business. Mr. Howe was elected to finish the unexpired term of James L. Dailey who retired from the Board of Directors of Ohio Valley effective January 18, 2005. Mr. Dailey continues to serve as the Chairman of the Board of Directors of the Bank. The Board of Directors of Ohio Valley has nominated Mr. Howe to stand for re-election to the Board of Directors of Ohio Valley at Ohio Valley's Annual Meeting of Shareholders on April 13, 2005. 21 On March 2, 2005, Ohio Valley issued a press release announcing Mr. Howe's election to its Board of Directors. A copy of the press release is included as Exhibit 99 to this Form 10-K and incorporated herein by reference. Appointment of Principal Officer -------------------------------- On December 14, 2004, Scott W. Shockey was elected as Vice President and Chief Financial Officer of Ohio Valley and as Senior Vice President of the Bank. Mr. Shockey, age 35, has also served as Chief Financial Officer of the Bank since 2001. Mr. Shockey served as Assistant Treasurer of Ohio Valley from 2001 to December 14, 2004; as Vice President of the Bank from 2001 to December 14, 2004; and as Assistant Vice President and Comptroller of the Bank from 1999 to 2001. The Bank has had and expects to have in the future banking transactions in the ordinary course of the Bank's business with Mr. Shockey, and members of his immediate family. All loans and commitments to loan included in such transactions were made on substantially the same terms, including interest rates and collateral on loans and repayment terms, as those prevailing at the time for comparable transactions with other persons and, in the opinion of management, each such loan and commitment to loan did not involve more than a normal risk of uncollectibility or present other unfavorable features. All of such loans comply with Regulation O of the federal banking regulations. The aggregate amount of loans to Mr. Shockey and affiliates and other associates of Mr. Shockey was $32,512 at December 31, 2004. As of the date hereof, all of such loans were performing loans. The following information is disclosed pursuant to Item 1.01 - Entry into a Material Definitive Agreement of Form 8-K: Compensation of Directors ------------------------- All of the directors of Ohio Valley also serve as directors of the Bank. The directors of Ohio Valley are paid by the Bank for their services rendered as directors of the Bank. The form and amount of compensation paid to Ohio Valley's directors is reviewed periodically by the Compensation and Mangement Succession Committee of Ohio Valley's Board of Directors as well as the full Board. On December 14, 2004, upon the recommendation of the Compensation and Management Succession Committee, Ohio Valley's Board of Directors increased the amount of the annual retainer to be paid to each of Ohio Valley's directors by $650. Accordingly, in December 2004, each director of Ohio Valley received an annual retainer of $15,350 for services to be rendered in fiscal 2005. No other changes were made to the directors' compensation package. A summary of the compensation paid to Ohio Valley's directors is filed as Exhibit 10.9 to this Form 10-K and incorporated herein by reference. 22 Long Range Bonus Program Awards ------------------------------- Ohio Valley maintains a bonus program (the "Long Range Bonus Program") for the executive officers and certain other officers of Ohio Valley and the Bank. Bonuses under the Long Range Bonus Program are calculated based on each participant's annual performance evaluation and the Bank's achievement of certain performance criteria. A summary of the Long Range Bonus Program is filed as Exhibit 10.10 to this Form 10-K and incorporated herein by reference. In December 2004, the Board of Directors of Ohio Valley, upon the recommendation of the Compensation and Management Succession Committee, approved the following bonuses for the executive officers of Ohio Valley under the Long Range Bonus Program in respect of fiscal 2004 performance: Jeffrey E. Smith $71,553 E. Richard Mahan $51,554 Larry E. Miller $46,266 Katrinka V. Hart $46,266 Sue Ann Bostic $44,937 Annual Results Bonus -------------------- Ohio Valley maintains an Annual Results Bonus Program. The objectives of the Annual Results Bonus Program are (a) to motivate Ohio Valley's executive officers and other employees and to reward them for the accomplishment of the short-term goals of Ohio Valley and its subsidiaries; (b) to reinforce a strong performance orientation with differentiation and variability in individual awards based on contribution to annual results; and (c) to provide a competitive compensation package that will attract, reward and retain employees of the highest quality. All employees of Ohio Valley and its subsidiaries holding positions with a pay grade of 8 or above are eligible to participate in the Annual Results Bonus Program, including all of Ohio Valley's executive officers. Bonuses payable to participants in the Annual Results Bonus Program are based on the performance of Ohio Valley and its sibsidiaries against specific performance targets designated by Ohio Valley's Board of Directors upon the recommendation of its Compensation and Management Succession Committee. In January 2004, the Board of Directors designated specific performance targets for Ohio Valley and its subsidiaries related to earnings growth, return on assets, return on equity and asset quality for fiscal 2004 (the "2004 Performance Targets"). In December 2004, Ohio Valley's Board of Directors, upon the recommendation of the Compensation and Management Succession Committee, (1) determined that the 2004 Performance Targets were achieved (due in part to the sale of Ohio Valley's interest in ProCentury), (2) set the aggregate amount available for bonuses under the Annual Results Bonus Program and (3) allocated the aggregate amount available for bonuses among the various pay grades. All employees in the same pay grade received the same bonus (except for Mr. Smith as explained below). Accordingly, Ohio Valley's Board of Directors, upon the recommendation of the Compensation and Management Succession Committee, approved bonuses for the 23 following executive officers of Ohio Valley under the Annual Results Bonus Program in respect of fiscal 2004 performance: E. Richard Mahan $2,000 Larry E. Miller $2,000 Katrinka V. Hart $2,000 Sue Ann Bostic $1,750 Based upon his pay grade, Jeffrey E. Smith, the President and Chief Executive Officer of Ohio Valley, should have received a bonus of approximately $2,000. However, the Compensation and Management Succession Committee exercised its discretion and recommended to the Board of Directors that Mr. Smith receive a $12,000 bonus under the Annual Results Bonus Program. Ohio Valley's Board of Directors accepted the recommendation of the Compensation and Management Succession Committee and awarded the $12,000 bonus to Mr. Smith. All bonuses under the Annual Results Bonus Program were paid in December 2004 in cash in a single lump sum after deduction of payroll taxes and tax withholdings. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required under this Item 10 by Items 401 and 405 of SEC Regulation S-K is incorporated herein by reference to the information presented in Ohio Valley's definitive proxy statement relating to the annual meeting of shareholders of Ohio Valley to be held on April 13, 2005 (the "2005 Proxy Statement"), under the captions "Proxy Item 1: Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" located on pages 7 through 15 and page 6, respectively, of the 2005 Proxy Statement. In addition, certain information concerning executive officers of Ohio Valley is set forth in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant." In accordance with the requirements of Item 406 of SEC Regulation S-K, the Board of Directors of Ohio Valley has adopted a Code of Ethics covering the directors, officers and employees of Ohio Valley and its affiliates, including, without limitation, the principal executive officer, the principal financial officer and the principal accounting officer of Ohio Valley. Interested persons may obtain copies of the Code of Ethics without charge by writing to Ohio Valley Banc Corp, Attention: E. Richard Mahan, Secretary, P.O. Box 240, Gallipolis, Ohio 45631. ITEM 11 - EXECUTIVE COMPENSATION The information required under this Item 11 by Item 402 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption "Compensation of Executive Officers and Directors" located on pages 16 through 23 of the 2005 Proxy Statement. 24 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this Item 12 by Item 403 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption "Ownership of Certain Beneficial Owners and Management" located on pages 3 through 6 of the 2005 Proxy Statement. Ohio Valley does not maintain any equity compensation plans requiring disclosure pursuant to Item 201(d) of SEC Regulation S-K. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under this Item 13 by Item 404 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption "Certain Relationships and Related Transactions" located on page 23 of the 2005 Proxy Statement. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this Item 14 by Item 9(e) of Schedule 14A is incorporated herein by reference to the information presented under the captions "Pre-Approval of Services Performed by Independent Registered Public Accounting Firm" and "Services Rendered by the Independent Registered Public Accounting Firm" located on pages 25 through 29 of the 2005 Proxy Statement. PART IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES A. (1) Financial Statements The following consolidated financial statements of Ohio Valley appear in the 2004 Annual Report to Shareholders, Exhibit 13, and are specifically incorporated herein by reference under Item 8 of this Form 10-K: Consolidated Statements of Condition as of December 31, 2004 and 2003 Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Notes to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Financial Statements 25 (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 beginning on page 28 of this Form 10-K. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ohio Valley has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO VALLEY BANC CORP. Date: March 16 , 2005 By /s/Jeffrey E. Smith -------- ------------------------- Jeffrey E. Smith President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 16 , 2005 by the following persons on behalf of Ohio Valley and in the capacities indicated. Name Capacity ---- -------- /s/Jeffrey E. Smith President, Chief Executive Officer ----------------------------- and Director Jeffrey E. Smith /s/Scott W. Shockey Vice President and Chief Financial ----------------------------- Officer (principal financial officer Scott W. Shockey and principal accounting officer) /s/Lannes C. Williamson Director ----------------------------- Lannes C. Williamson /s/Anna P. Barnitz Director ----------------------------- Anna P. Barnitz /s/W. Lowell Call Director ----------------------------- W. Lowell Call /s/Robert H. Eastman Director ----------------------------- Robert H. Eastman /s/Brent A. Saunders Director ----------------------------- Brent A. Saunders /s/Steven B. Chapman Director ----------------------------- Steven B. Chapman /s/Thomas E. Wiseman Director ----------------------------- Thomas E. Wiseman /s/Harold A. Howe Director ----------------------------- Harold A. Howe 27 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 3(a) Amended Articles of Incorporation of Ohio Valley. Incorporated herein by reference to Exhibit 3(a) to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 1997 (SEC File No. 0-20914). 3(b) Code of Regulations of Ohio Valley. Incorporated herein by reference to Exhibit 3(b) to Ohio Valley's current report on Form 8-K (SEC File No. 0-20914) filed November 6, 1992. 4 Agreement to furnish instruments and agreements defining rights of holders of long-term debt. Filed herewith. 10.1 Split Dollar Agreement, dated November 11, 1996, between Jeffrey E. Smith and The Ohio Valley Bank Company. Incorporated herein by reference to Exhibit 10.1 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.2 Schedule A to Exhibit 10.1 identifying other identical Split Dollar Agreements between The Ohio Valley Bank Company and executive officers of Ohio Valley Banc Corp. Incorporated herein by reference to Exhibit 10.2 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.3 Director Retirement Plan, dated October 10, 2002, between Brent A. Saunders and The Ohio Valley Bank Company. Incorporated herein by reference to Exhibit 10.3 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.4 Schedule A to Exhibit 10.3 identifying other identical director retirement plans between The Ohio Valley Bank Company and executive officers who are directors of Ohio Valley Banc Corp. Incorporated herein by reference to Exhibit 10.4 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.5 Salary Continuation Plan, dated January 2, 1997, between Jeffrey E. Smith and The Ohio Valley Bank Company. Incorporated herein by reference to Exhibit 10.5 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 28 10.6 Schedule A to Exhibit 10.5 identifying other identical salary continuation plans between The Ohio Valley Bank Company and executive officers of Ohio Valley Banc Corp. Incorporated herein by reference to Exhibit 10.6 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.7 Deferred Compensation Plan, dated November 11, 2002, between Barney A. Molnar and The Ohio Valley Bank Company. Incorporated herein by reference to Exhibit 10.7 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.8 Schedule A to Exhibit 10.7 identifying other identical deferred compensation plans between The Ohio Valley Bank Company and executive officers or directors of Ohio Valley Banc Corp. Incorporated herein by reference to Exhibit 10.8 to Ohio Valley's Annual Report on Form 10-K for fiscal year ending December 31, 2002 (SEC File No. 0-20914). 10.9 Summary of Compensation for Directors of Ohio Valley Banc Corp. Filed herewith. 10.10 Summary of Long Range Bonus Program of Ohio Valley Banc Corp. Filed herewith. 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 Ohio Valley's Annual Report to Shareholders for the fiscal year ended December 31, 2004 filed herewith. (Not deemed filed except for portions thereof specifically incorporated by reference into this Annual Report on Form 10-K.) 21 Subsidiaries of Ohio Valley. Filed herewith. 29 23 Consent of Independent Accountant - Crowe Chizek and Company LLC. Filed herewith. 31.1 Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer). Filed herewith. 31.2 Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer). Filed herewith. 32 Section 1350 Certifications (Principal Executive Officer and Principal Accounting Officer). Filed herewith. 99 Press Release issed by Ohio Valley on March 2, 2005. Filed herewith. 30