-----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, PfVapp8B66G2LRRLwkEsbuNKA2ZKegtohw8+L1j/v+bd2xK3vHTSVjHmOo2y4pFA c4bIeQbe7JwRxpEDujzdUA== 0000894671-00-000003.txt : 20000331 0000894671-00-000003.hdr.sgml : 20000331 ACCESSION NUMBER: 0000894671-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO VALLEY BANC CORP CENTRAL INDEX KEY: 0000894671 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311359191 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20914 FILM NUMBER: 586903 BUSINESS ADDRESS: STREET 1: 420 THIRD AVE CITY: GALLIPOLIS STATE: OH ZIP: 45631 BUSINESS PHONE: 6144462631 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ended:___________________ Commission file number: 0-20914 Ohio Valley Banc Corp. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio --------------------------------------------- (State or other jurisdiction or organization) 31-1359191 --------------------------------------- (I.R.S. Employer Identification Number) 420 Third Avenue, Gallipolis, Ohio 45631 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (740) 446-2631 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Shares, Without Par Value -------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S - K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 29, 2000: $102,245,888 The number of common shares of the registrant outstanding as of February 29, 2000: 3,542,987 common shares. Exhibit Index begins on page 20. Page 1 of 68 pages. Ohio Valley Banc Corp. Form l0-K December 31, 1999 DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 1999 Annual Report to Shareholders of Ohio Valley Banc Corp. (Exhibit 13) are incorporated by reference into Part I, Item 1 and Part II, Items 5, 6, 7A and 8. (2) Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held April 12, 2000 are incorporated by reference into Part III, Items 10, 11, 12 and 13. Contents of Form 10-K PART I Item 1 Business 3 Item 2 Properties 13 Item 3 Legal Proceedings 15 Item 4 Submission of Matters to a Vote of Security Holders 15 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6 Selected Financial Data 15 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7A Quantitative and Qualitative Disclosures about Market Risk 15 Item 8 Financial Statements and Supplementary Data 16 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III Item 10 Directors and Executive Officers of the Registrant 16 Item 11 Executive Compensation 17 Item 12 Security Ownership of Certain Beneficial Owners and Management 18 Item 13 Certain Relationships and Related Transactions 18 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 SIGNATURES 19 EXHIBIT INDEX 20 Page 2 PART I ITEM 1 - BUSINESS General Description of Business Ohio Valley Banc Corp. (the Registrant), was incorporated under the laws of the State of Ohio on January 8, 1992. The Registrant is registered under the Bank Holding Company Act of 1956, as amended (BHC Act). A substantial portion of the Registrant's revenue is derived from cash dividends paid by The Ohio Valley Bank Company, the Registrant's wholly-owned subsidiary (the Bank). The principal executive offices of the Registrant are located at 420 Third Avenue, Gallipolis, Ohio 45631. The Bank was organized on September 24, 1872, under the laws governing private banking in Ohio. The Bank was incorporated in accordance with the general corporation laws governing savings and loan associations of the State of Ohio on January 8, 1901. The Articles of Incorporation of the Bank were amended on January 25, 1935, for the purpose of authorizing the Bank to transact a commercial savings bank and safe deposit business and again on January 26, 1950, for the purpose of adding special plan banking. The Bank was approved for trust powers in 1980 with trust services first being offered in 1981. The Bank's deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC). The Registrant's wholly-owned subsidiary, Loan Central, Inc. (Loan Central), was formed on February 1, 1996. Loan Central was incorporated under the Ohio laws governing finance companies. The Registrant's wholly-owned subsidiary, The Jackson Savings Bank (Jackson), was acquired in a business combination accounted for using the pooling of interest method on December 15, 1998. Jackson was incorporated under the laws of the State of Ohio on January 1, 1899. Jackson's deposits are insured up to applicable limits by the FDIC. The Bank is engaged in commercial and retail banking. Loan Central is engaged in consumer finance. Jackson is engaged primarily in the business of accepting deposits and issuing first mortgage and consumer loans. Reference is hereby made to Item 1 (E), "Statistical Disclosure" and Item 8 of this Form 10-K for financial information pertaining to the Registrant's business through its subsidiaries. Description of Ohio Valley Banc Corp.'s Business The Registrant's business is incident to its 100% ownership of the outstanding stock of the Bank, Loan Central and Jackson. The Bank is a full-service financial institution offering a blend of commercial, retail and agricultural banking services. Loans of all types and checking, savings and time deposits are offered, along with such services as safe deposit boxes, issuance of travelers' checks and administration of trusts. Loan Central, a consumer finance company, offers smaller balance consumer loans to individuals with nonconforming or nontraditional credit history. Jackson, a state-chartered savings bank, principally offers first mortgage loans used to finance the purchase, construction or improvement of residential or other real property. In addition to originating loans, the Bank and Jackson invest in U.S. Government and agency obligations, interest-bearing deposits in other financial institutions and other investments permitted by applicable law. Page 3 PART I (continued) Revenues from loans accounted for 82.38% in 1999, 80.50% in 1998 and 80.62% in 1997 of total consolidated revenues. Revenues from interest and dividends on securities accounted for 10.36%, 12.23% and 13.79% of total consolidated revenues in 1999, 1998 and 1997, respectively. The Bank presently has sixteen offices, all of which offer automatic teller machines. Seven of these offices also offer drive-up services. The Bank accounted for substantially all of the Registrant's consolidated assets at December 31, 1999. The banking business is highly competitive. The market area for the Bank and Jackson is concentrated primarily in the Gallia, Jackson, Pike and Franklin Counties of Ohio as well as the Mason, Kanawha and Cabell Counties of West Virginia. Some additional business originates from the surrounding Ohio counties of Meigs, Vinton, Scioto and Ross. Competition for deposits and loans comes primarily from local banks and savings associations, although some competition is also experienced from local credit unions, insurance companies and mutual funds. In addition, larger regional institutions, with substantially greater resources, are becoming increasingly visible. With the formation of Loan Central, the Registrant is better able to compete in Gallia, Jackson and Pike County by serving a consumer base which may not meet the Bank's credit standards. Loan Central also operates in Lawrence County which is outside the Bank's primary market area. In addition, the acquisition of Jackson has expanded the Registrant's market share in Jackson County by enhancing bank activities. The principal methods of competition are the rates of interest charged for loans, the rates of interest paid for deposits, the fees charged for services and the availability and quality of services. The business of the Registrant and its subsidiaries is not seasonal, nor is it dependent upon a single or small group of customers. The Bank and Jackson deal with a wide cross-section of businesses and corporations which are located primarily in southeastern Ohio. Few loans are made to borrowers outside this area. Lending decisions are made in accordance with written loan policies designed to maintain loan quality. The Bank originates commercial loans, commercial leases, residential real estate loans, home equity lines of credit, installment loans and credit card loans. The Bank believes that there is no significant concentration of loans to borrowers engaged in the same or similar industries and does not have any loans to foreign entities. Commercial lending entails significant risks as compared with consumer lending - - i.e., single-family residential mortgage lending, installment lending and credit card loans. In addition, the payment experience on commercial loans is typically dependent on adequate cash flows in order to evaluate whether anticipated future cash flows will be adequate to service both interest and principal due. Thus, commercial loans may be subject, to a greater extent, to adverse conditions in the economy generally or adverse conditions in a specific industry. The Registrant's subsidiaries make installment credit available to customers and prospective customers in their primary market area of southeastern Ohio. Credit approval for consumer loans requires demonstration of sufficiency of income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of the subsidiaries to adhere strictly to all laws and regulations governing consumer lending. A qualified compliance officer is responsible for monitoring the performance of their respective consumer portfolio and updating loan personnel. The Registrant's subsidiaries make credit life insurance and health and accident insurance available to all qualified buyers thus reducing their risk of loss when a borrower's income is terminated or interrupted. The Registrant's subsidiaries Page 4 PART I (continued) review their respective consumer loan portfolios monthly to charge off loans which do not meet that subsidiary's standards. Credit card accounts are administered in accordance with the same standards as applied to other consumer loans. Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower's continued financial stability and thus are more likely to be adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. The market area for real estate lending by the Bank is also located in southeastern Ohio. The Bank generally requires that the loan amount with respect to residential real estate loans be no more than 89% of the purchase price or the appraisal value of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower for the percentage exceeding 89%. These loans generally range from one year adjustable to thirty year fixed rate mortgages. The Bank is currently not originating mortgages for the secondary market. 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. The Bank expanded its operations in December 1996 by introducing a supermarket branch in the Bank's existing market area of Gallia County to further enhance the Bank's customer service through extended hours and convenience. In January 1997, another branch was opened in Columbus, Ohio (Franklin County) which represented a new market area for the Bank. The Bank also converted its loan origination office in Point Pleasant, West Virginia to a full-service branch providing greater access to its current and future customers. The Bank continued this growth in 1998 by opening three additional SuperBank branches, two of which are located within Wal-Mart stores in Gallipolis, Ohio and Cross Lanes, West Virginia (Kanawha County), and the third branch located within a supermarket in Pomeroy, Ohio (Meigs County). In December 1998, the Registrant acquired Jackson, conducting business with one office in Jackson, Ohio, to further enhance banking activities in Jackson County. The expansion into newer market areas continued in 1999 with the acquisition of two Huntington National Bank (HNB) branches in Milton and Barboursville, West Virginia (Cabell County), with the Milton office offering a traditional-style service and the Barboursville office representing a SuperBank facility. The Bank continued its growth by adding two additional SuperBanks in South Charleston, West Virginia (Kanawha County) and South Point, Ohio (Lawrence County). To expand on Loan Central's success, a fourth office located in Waverly, Ohio (Pike County) opened for business in early 1999. To further strengthen its presence in the growing I-64 corridor of western West Virginia, the Bank's eighth SuperBank facility in Huntington (Cabell County) is expected to commence operations in the second quarter of 2000. Supervision and Regulation The following is a summary of certain statutes and regulations affecting the Registrant, Bank and Jackson. The summary is qualified in its entirety by reference to such statutes and regulations. Page 5 PART I (continued) The Registrant is a bank holding company under the BHC Act, which restricts the activities of the Registrant and the acquisition by the Registrant of voting shares or assets of any bank, savings association or other company. The Registrant is also subject to the reporting requirements of, and examination and regulation by, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof and the taking of such stock securities as collateral for loans or extensions of credit to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the bank holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the bank holding company and other subsidiaries. Bank holding companies are prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve Board. A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the bank holding company or its subsidiaries. In November of 1999, the Gramm-Leach-Bliley, or Financial Services Modernization Act was enacted, amending the Bank Holding Company Act of 1956, modernizing the laws governing the financial services industry. This Act contains a variety of provisions of benefit to the banking industry, including language which greatly expands the powers of banks and bank holding companies by authorizing a bank holding company to affiliate with any financial company and cross-sell an affiliate's products, thus allowing such a company to offer its customers any financial product or service. The Act expands the number of permissible activities to include a wide variety of financial activities; any activity in the future not already included in the list that the Federal Reserve and the Treasury Department consider financial in nature or incidental to financial activities; and any activity that the Federal Reserve determines complementary to a financial activity and which does not pose a substantial safety and soundness risk. In addition, the Act fully closes the unitary thrift loophole which permits commercial companies to own and operate thrifts, reforms the Federal Home Loan Bank System to significantly increase community banks' access to loan funding and protects banks from discriminatory state insurance regulation. The Act also includes new provisions in the privacy area, restricting the ability of financial institutions to share nonpublic personal customer information with third parties. As Ohio state-chartered banks, the Bank and Jackson are supervised and regulated by the Ohio Division of Financial Institutions. The deposits of these banks are insured up to applicable limits by the FDIC and are subject to the applicable provisions of the Federal Deposit Insurance Act. In addition, the holding company of any insured financial institution that submits a capital plan under the federal banking agencies' regulations on prompt corrective action guarantees a portion of the institution's capital shortfall, as discussed below. Various requirements and restrictions under the laws of the United States and the State of Ohio affect the operations of the Bank including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans which may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, Page 6 PART I (continued) limitations on payment of dividends, and limitations on branching. Since June 1997, pursuant to federal legislation, the Bank and Jackson have been authorized to branch across state lines, unless the law of the other state specifically prohibits the interstate branching authority granted by federal law. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and for state member banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The minimum ratio of capital to risk weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least 4.0 percentage points is to be comprised of common stockholders' equity (including retained earnings but excluding treasury stock), noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder ("Tier 2 Capital") may consist, among other things, of mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of allowance for loan and lease losses. The Federal Reserve Board also imposes a minimum leverage ratio (Tier 1 capital to total assets) of 3% for bank holding companies and state member banks that meet certain specified conditions, including no operational, financial or supervisory deficiencies, and including having the highest regulatory rating. The minimum leverage ratio is 100-200 basis points higher for other bank holding companies and state member banks based on their particular circumstances and risk profiles and those experiencing or anticipating significant growth. State non-member banks, such as the Bank and Jackson, are subject to similar capital requirements adopted by the FDIC. The Registrant, Bank and Jackson currently satisfy all capital requirements. Failure to meet applicable capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal and state regulatory authorities, including the termination of deposit insurance by the FDIC. The federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions which become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Such institutions are also required to file capital plans with their primary federal regulator, and their holding companies must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized. The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary banks and other subsidiaries. However, the Federal Reserve Board expects the Registrant to serve as a source of strength to these banks, which may require them to retain capital for further investments in these banks, rather than for dividends for shareholders of the Registrant. These banks may not pay dividends to the Registrant if, after paying such dividends, they would fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. These banks must have the approval of their regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of their current year's net profits and retained net profits for the preceding two Page 7 PART I (continued) years, less required transfers to surplus. Payment of dividends by these banks may be restricted at any time at the discretion of their regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for these banks. These provisions could have the effect of limiting the Registrant's ability to pay dividends on its outstanding common shares. Deposit Insurance Assessments and Recent Litigation The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"). The Bank and Jackson are members of the BIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both BIF and SAIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Because BIF became fully funded, BIF assessments for healthy commercial banks were reduced to $0 per year during 1999. Federal legislation, which became effective September 30, 1996, provides, among other things, for the costs of prior thrift failures to be shared by both the SAIF and the BIF. As a result of such cost sharing, BIF assessments for healthy banks during 2000 will be $0.021 per $100 in deposits. Based upon their level of deposits at December 31, 1999, the projected BIF assessments for the Bank and Jackson would be $82,698 and $3,232, respectively for 2000. Monetary Policy and Economic Conditions The business of commercial banks is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates the money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly influence the amount of bank loans and deposits and the interest rates charged and paid thereon, and thus have an effect on earnings. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to have significant effects in the future. In view of the changing conditions in the economy and the money market and the activities of monetary and fiscal authorities, no definitive predictions can be made as to future changes in interest rates, credit availability or deposit levels. Other Information Management anticipates no material effect upon the capital expenditures, earnings and competitive position of the Registrant or its subsidiaries by reason of any laws regulating or protecting the environment. The Registrant believes that the nature of the operations of the subsidiaries has little, if any, environmental impact. The Registrant, therefore, anticipates no material capital expenditures for environmental control facilities in its current fiscal year or for Page 8 PART I (continued) the foreseeable future. The subsidiaries may be required to make capital expenditures related to properties which they may acquire through foreclosure proceedings in the future; however, the amount of such capital expenditures, if any, is not currently determinable. Neither the Registrant nor its subsidiaries have any material patents, trademarks, licenses, franchises or concessions. No material amounts have been spent on research activities and no employees are engaged full-time in research activities. As of December 31, 1999, the Registrant and its subsidiaries employed 254 persons full-time and 25 persons part-time. Management considers its relationship with its employees to be good. Financial Information About Foreign and Domestic Operations and Export Sales The Registrant's subsidiaries do not have any offices located in a foreign country and they have no foreign assets, liabilities, or related income and expense. Statistical Disclosure The following section contains certain financial disclosures relating to the Registrant as required under the Securities and Exchange Commission's Industry Guide 3, "Statistical Disclosure by Bank Holding Companies", or a specific reference as to the location of the required disclosures in the Registrant's 1999 Annual Report to Shareholders which are hereby incorporated herein by reference. Ohio Valley Banc Corp. Statistical Information I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL A. & B. The average balance sheet information and the related analysis of net interest earnings for the years ending December 31, 1999, 1998 and 1997 are included in Table I - "Consolidated Average Balance Sheet & Analysis of Net Interest Income", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. C. Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 1999, 1998 and 1997 are included in Table II - "Rate Volume Analysis of Changes in Interest Income & Expense", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. For purposes of these Tables, changes in interest due to volume and rate were determined as follows: Volume Variance - Change in volume multiplied by the previous year's rate. Rate Variance - Change in rate multiplied by the previous year's volume. Rate/Volume Variance - Change in volume multiplied by the change in rate. Page 9 PART I (continued) Ohio Valley Banc Corp. Statistical Information II. SECURITIES A. Types of Securities - Total securities on the balance sheet are comprised of the following classifications at December 31: (dollars in thousands) 1999 1998 1997 ---- ---- ---- Securities Available-for-Sale U.S. Treasury securities .......... $ 7,510 $ 18,143 $ 27,446 U.S. Government agency securities.. 41,522 4,114 2,062 Mortgage-backed securities......... 2,189 Marketable equity securities....... 4,150 3,998 3,861 --------- --------- --------- Total securities available-for-sale $ 55,371 $ 26,255 $ 33,369 ========= ========= ========= Securities Held-to-Maturity U.S. Treasury securities........... $ 100 U.S. Government agency securities.. 27,693 $ 24,509 Obligations of states and political subdivisions........... $ 15,690 17,195 13,935 Corporate obligations.............. 503 Mortgage-backed securities......... 319 381 472 --------- --------- --------- Total securities held-to-maturity $ 16,009 $ 45,369 $ 39,419 ========= ========= ========= B. Information required by this item is included in Table III - "Securities", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this item 1 by reference. C. Excluding obligations of the U.S. Treasury and other agencies and corporations of the U.S. Government, no concentration of securities exists of any issuer that is greater than 10% of shareholders' equity of the Registrant. III. LOAN PORTFOLIO A. Types of Loans - Total loans on the balance sheet are comprised of the following classifications at December 31: (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Real estate loans $201,625 $163,650 $120,697 $112,635 $106,734 Commercial loans 119,585 96,116 78,124 74,666 52,361 Consumer loans 88,942 85,664 78,878 75,047 66,922 All other loans 1,006 1,700 2,568 2,312 1,200 -------- -------- -------- -------- -------- $411,158 $347,130 $280,267 $264,660 $227,217 ======== ======== ======== ======== ======== Page 10 PART I (continued) Ohio Valley Banc Corp. Statistical Information B. Maturities and Sensitivities of Loans to Changes in Interest Rates - Information required by this item is included in table VII - "Maturity and Repricing Data of Loans", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. C.1. Risk Elements - Information required by this item is included in Table VI - "Summary of Nonperforming and Past Due Loans", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. 2. Potential Problem Loans - At December 31, 1999, there are approximately $600,000 of loans, which are not included in Table VI - "Summary of Nonperforming and Past Due Loans" within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders, for which management has some doubt as to the borrower's ability to comply with the present repayment terms. These loans and their potential loss exposure have been considered in management's analysis of the adequacy of the allowance for loan losses. 3. Foreign Outstandings - There were no foreign outstandings at December 31, 1999, 1998, or 1997. 4. Loan Concentrations - As of December 31, 1999, there were no concentrations of loans greater than 10% of total loans which are not otherwise disclosed as a category of loans pursuant to Item III (A) above. Also refer to the Consolidated Financial Statements regarding concentrations of credit found within Note A of the Notes to the Consolidated Financial Statements of the Registrant's 1999 Annual Report to Shareholders incorporated herein by reference. 5. No material amount of loans that have been classified by regulatory examiners as loss, substandard, doubtful, or special mention have been excluded from the amounts disclosed as impaired, nonaccrual, past due 90 days or more, restructured, or potential problem loans. D. Other Interest-Bearing Assets - As of December 31, 1999, there were no other interest-bearing assets that would be required to be disclosed under Item III (C) if such assets were loans. At December 31, 1999, other real estate owned totaled $30,000. Page 11 PART I (continued) Ohio Valley Banc Corp. Statistical Information IV. SUMMARY OF LOAN LOSS EXPERIENCE A. The following schedule presents an analysis of the allowance for loan losses for the years ended December 31: (dollars in thousands) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Balance, beginning of year.... $4,277 $3,390 $3,180 $2,481 $2,261 Loans charged-off: Real estate............... 41 110 39 5 32 Commercial................ 454 130 215 78 182 Consumer.................. 1,298 1,433 961 673 304 -------- -------- -------- -------- -------- Total loans charged-off 1,793 1,673 1,215 756 518 Recoveries of loans: Real estate............... 13 40 1 Commercial................ 23 47 41 73 57 Consumer.................. 232 178 138 54 47 -------- -------- -------- -------- -------- Total recoveries of loans 268 265 180 127 104 Net loan charge-offs.......... (1,525) (1,408) (1,035) (629) (414) Provision charged to operations 2,303 2,295 1,245 1,328 634 -------- -------- -------- -------- -------- Balance, end of year.......... $5,055 $4,277 $3,390 $3,180 $2,481 ======== ======== ======== ======== ======== Ratio of Net Charge-offs to Average Loans - Information required by this item is included in Table V - "Allocation of the Allowance for Loan Losses", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. In addition, attention is directed to the caption "Loans" within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. B. Allocation of the Allowance for Loan Losses - Information required by this item is included in Table V - "Allocation of the Allowance for Loan Losses", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. V. DEPOSITS A. & B. Deposit Summary - Information required by this item is included in Table I - "Consolidated Average Balance Sheet & Analysis of Net Interest Income", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. Page 12 PART I (continued) Ohio Valley Banc Corp. Statistical Information C. & E. Foreign Deposits - There were no foreign deposits outstanding at December 31, 1999, 1998, or 1997. D. Schedule of Maturities - The following table provides a summary of total time deposits by remaining maturities for the period ended December 31, 1999: 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.................. $ 13,825 $ 20,103 $ 21,292 $ 15,363 Other time deposits of $100,000 or greater.................. 877 670 1,092 3,698 --------- --------- --------- --------- Total time deposits of $100,000 or greater.................. $ 14,702 $ 20,773 $ 22,384 $ 19,061 ========= ========= ========= ========= VI. RETURN ON EQUITY AND ASSETS Information required by this section is included in Table IX - "Key Ratios", within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated into this Item 1 by reference. VII. SHORT-TERM BORROWINGS The following schedule is a summary of securities sold under agreements to repurchase at December 31: (dollars in thousands) 1999 1998 1997 -------- -------- -------- Balance outstanding at period-end........... $ 16,788 $ 19,066 $ 12,831 -------- -------- -------- Weighted average interest rate at period-end 4.54% 3.96% 3.95% -------- -------- -------- Average amount outstanding during year...... $ 13,961 $ 18,148 $ 11,352 -------- -------- -------- Approximate weighted average interest rate during the year.......................... 3.65% 3.77% 3.83% -------- -------- -------- Maximum amount outstanding as of any month-end................................ $ 16,788 $ 25,112 $ 16,768 -------- -------- -------- ITEM 2 - PROPERTIES The Registrant owns no material physical properties except through the Bank. The Bank conducts its operations from its main office building at 420 Third Avenue, in Gallipolis, Ohio 45631. The main office building, Trust/Operations Center and six of the fifteen branch facilities are owned by the Bank. Page 13 PART I (continued) The Bank has fifteen branch offices. A summary of these properties are as follows: 1) Mini-Bank Office 437 Fourth Avenue, Gallipolis, OH 45631 2) Jackson Pike Office 3035 State Route 160, Gallipolis, OH 45631 3) Rio Grande Office 416 West College Avenue, Rio Grande, OH 45674 4) Jackson Office 738 East Main Street, Jackson, OH 45640 5) Waverly Office 507 W. Emmitt Avenue, Waverly, OH 45690 6) Columbus Office 3700 South High Street, Columbus, OH 43207 7) Point Pleasant Office 328 Viand Street, Point Pleasant, WV 25550 8) SuperBank-Gallipolis Office 236 Second Avenue, Gallipolis, OH 45631 9) SuperBank-Pomeroy Office 700 West Main Street, Pomeroy, OH 45769 10) Wal-Mart Gallipolis Office 2145 Eastern Avenue, Gallipolis, OH 45631 11) Wal-Mart Cross Lanes Office 100 Nitro Marketplace, Cross Lanes, WV 25315 12) Wal-Mart Southridge Office 2700 Mountaineer Blvd., S. Charleston, WV 25309 13) SuperBank-Pea Ridge Office 6360 US Rt. 60 East, Barboursville, WV 25504 14) Milton Office 280 East Main Street, Milton, WV 25541 15) Wal-Mart South Point Office US Rt. 52, South Point, OH 45680 The Columbus, Point Pleasant, SuperBank and Wal-Mart offices are all leased. The lease term for the Columbus facility is from July 14, 1999 to July 13, 2002, with a base rent of $8,010 per year. The Point Pleasant location has a lease term from July 1, 1997 to June 30, 2017, with a base rent of $30,000 per year. The lease term for the SuperBank-Gallipolis facility is from December 1, 1996 to November 30, 2001, with an option to renew for an additional five years. The base rent is $8,900 per year. The lease term for the SuperBank-Pomeroy facility is from August 1, 1998 to July 31, 2003, with a base rent of $13,000 per year. The lease term for the Wal-Mart Gallipolis location is from May 20, 1998 to May 19, 2003, with a base rent of $25,000 per year. The lease term for the Wal-Mart Cross Lanes location is from August 19, 1998 to August 18, 2003, with a base rent of $25,000 per year. The lease term for the Wal-Mart Southridge location is from August 27, 1999 to August 31, 2004, with a base rent of $32,000 per year. The lease term for the SuperBank-Pea Ridge facility is from September 30, 1999 to October 1, 2000, with a base rent of $24,000 per year. The lease term for the Wal-Mart South Point location is from November 4, 1999 to November 30, 2004, with a base rent of $25,000 per year. The Bank owns a facility at 143 Third Avenue, Gallipolis, Ohio used for additional office space. The Bank also owns a facility at 441 Second Avenue, Gallipolis, Ohio, which it leases to Caldwell Miller Financial Group, Inc. The primary lease term is from July 1, 1997 to June 30, 2002, with a base rent of $13,800 per year. Loan Central leases four facilities used as consumer finance offices with one facility being located at 2145-E Eastern Avenue, Gallipolis, Ohio 45631; a second facility being located at 348 County Road 410, Suite 3, South Point, Ohio 45680; a third facility being located at 323 East Broadway Street, Jackson, Ohio 45640; and a fourth facility being located at 505 West Emmitt Avenue, Suite 3, Waverly, Ohio 45690. The lease term for the Gallipolis office is from February 1, 1999 to February 1, 2004, with a base rent of $25,000 in year 1, $25,500 in year 2, $25,900 in year 3, $26,400 in year 4, and $26,800 in year 5. The lease term for the South Point office is from February 1, 1999 to February 1, 2004, with a base rent of $18,000 per year. The lease term for the Jackson office is from January 22, 1998 to January 21, 2001, with a base rent of $9,600 Page 14 PART I (continued) per year. The lease term for the Waverly office is from April 1, 1999 to April 1, 2004, with a base rent of $9,600 per year. Jackson leases its office located at 221 Main Street, Jackson, Ohio 45640. The lease term for this location is from July 1, 1999 to July 1, 2002, with a base rent of $5,400 per year. Management considers its properties to be satisfactory for its current operations. ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings against the Registrant or its subsidiaries, other than ordinary litigation incidental to their respective businesses. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted during the fourth quarter of 1999 to a vote of security holders, by solicitation of proxies or otherwise. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required under this item is located under the caption "Summary of Common Stock Data" in the Registrant's 1999 Annual Report to Shareholders. In addition, attention is directed to the caption "Capital Resources" within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and to Note O - "Regulatory Matters". All such information is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA The information required under this item is incorporated by reference to the information appearing under the caption "Selected Financial Data" of the Registrant's 1999 Annual Report to Shareholders. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Operations" appears within the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required under this item is included in Table VIII - "Rate Sensitivity Analysis" and the caption "Liquidity and Interest Rate Sensitivity" found within Management's Discussion and Analysis of Operations of the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. Page 15 PART II (continued) ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Registrant's consolidated financial statements and related notes are listed below and incorporated herein by reference to the 1999 Annual Report to Shareholders. The "Report of Independent Auditors" and the supplementary "Summarized Quarterly Financial Information" specified by Item 302 of Regulation S-K appear within the 1999 Annual Report to Shareholders and are incorporated by reference. Consolidated Statements of Condition as of December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to the Consolidated Financial Statements Report of Independent Auditors ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No response required. PART III Information relating to the following items is included in the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 12, 2000 ("2000 Proxy Statement") filed with the Commission and is incorporated by reference to the pages listed below into this Form 10-K Annual Report, provided, that neither the report on executive compensation nor the performance graph included in the Registrant's definitive proxy statement shall be deemed to be incorporated herein by reference. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to Executive Officers who are directors is incorporated by reference to the information appearing under the caption "Election of Directors" on page 4 of the Registrant's 2000 Proxy Statement. Executive officers not required to be disclosed in the Proxy Statement are presented in the table below. Executive officers serve at the pleasure of the Board of Directors. Current Position and Name and Age Business Experience During Past 5 Years - ------------------ --------------------------------------- Sue Ann Bostic, 58 Vice President of the Registrant beginning 1996, Senior Vice President, Administrative Group of the Bank beginning 1996, Vice President, Support Services Division of the Bank from 1993 to 1995. Page 16 PART III (continued) Current Position and Name and Age Business Experience During Past 5 Years - ------------------ --------------------------------------- Cherie A. Barr, 33 Vice President of the Registrant beginning 1998, President and Secretary of Loan Central beginning 1999, Senior Vice President and Secretary of Loan Central beginning 1998, Secretary of Loan Central beginning 1997, Office Manager of Loan Central beginning 1996, Office Manager, American General Finance, Gallipolis, Ohio from 1994 to 1996. Katrinka V. Hart, 41 Vice President of the Registrant beginning 1995, Senior Vice President, Retail Bank Group of the Bank beginning 1995. Charles C. Lanham, 71 Governmental Relations and Secretary of the Registrant beginning 1999, Governmental Relations and Secretary of the Bank beginning 1999, Secretary and Director of Jackson beginning 1999, Senior Vice President of the Registrant from 1997 to 1998, Executive Vice President of the Bank from 1997 to 1998, Chairman of Bank One, Point Pleasant, West Virginia, N.A. beginning 1995, President of Bank One, Point Pleasant, West Virginia, N.A from 1993 to 1995. Mario P. Liberatore, 54 Vice President of the Registrant beginning 1997, Senior Vice President, West Virginia Bank Group of the Bank beginning 1997, President of Bank One, Point Pleasant, West Virginia, N.A. beginning 1995, Executive Vice President of Bank One, Point Pleasant, West Virginia, N.A. from 1993 to 1995. E. Richard Mahan, 54 Senior Vice President of the Registrant beginning 1999, Executive Vice President of the Bank beginning 1999, Vice President of the Registrant from 1995 to 1998, Senior Vice President, Commercial Bank Group of the Bank from 1995 to 1998. Larry E. Miller, II, 35 Senior Vice President of the Registrant beginning 1999, Executive Vice President of the Bank beginning 1999, Vice President of the Registrant from 1995 to 1998, Senior Vice President, Financial Bank Group of the Bank from 1995 to 1998. Harold A. Howe, 50 Vice President of the Registrant beginning 1998, President of Jackson beginning 1994. Further discussion located at pages 5-6 of 2000 Proxy Statement. No facts exist which would require disclosure under Item 405 of Regulation S-K. ITEM 11 - EXECUTIVE COMPENSATION Discussion located at pages 7-8 of 2000 Proxy Statement. Page 17 PART III (continued) ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Discussion located at pages 2-4 of 2000 Proxy Statement. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Discussion located at page 10 of 2000 Proxy Statement. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. (1) Financial Statements The following consolidated financial statements of the Registrant appear in the 1999 Annual Report to Shareholders, Exhibit 13, and are specifically incorporated by reference under Item 8 of this Form 10-K: Consolidated Statements of Condition as of December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to the Consolidated Financial Statements Report of Independent Auditors (2) Financial Statement Schedules Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements. (3) Exhibits Reference is made to the Exhibit Index which is found on page 20 of this Form 10-K. B. Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the year ended December 31, 1999. Page 18 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO VALLEY BANC CORP. Date: March 30, 2000 By /s/James L. Dailey ----------------------------- James L. Dailey, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 30, 2000 by the following persons on behalf of the Registrant and in the capacities indicated. Name Capacity ---- -------- /s/James L. Dailey Chairman, Chief Executive - ----------------------------- Officer and Director James L. Dailey /s/Jeffrey E. Smith President, Chief Operating Officer, - ----------------------------- Treasurer and Director Jeffrey E. Smith /s/Charles C. Lanham Governmental Relations and - ----------------------------- Secretary Charles C. Lanham /s/Phil A. Bowman Director - ----------------------------- Phil A. Bowman /s/Keith R. Brandeberry, M.D. Director - ----------------------------- Keith R. Brandeberry, M.D. /s/W. Lowell Call Director - ----------------------------- W. Lowell Call /s/Robert H. Eastman Director - ----------------------------- Robert H. Eastman /s/Merrill L. Evans Director - ----------------------------- Merrill L. Evans /s/Warren F. Sheets Director - ----------------------------- Warren F. Sheets /s/Thomas E. Wiseman Director - ----------------------------- Thomas E. Wiseman Page 19 EXHIBIT INDEX The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table: Exhibit Number Exhibit Description 3a Amended Articles of Ohio Valley Banc Corp. (as filed with the Ohio Secretary of State on August 21, 1992) are incorporated herein by reference to Form 10-K filed for the fiscal year ending December 31, 1997 [Exhibit 3a] filed March 31, 1998. 3b Code of Regulations of the Registrant are incorporated herein by reference to Form 8-K (File # 2-71309) [Exhibit 3b] filed November 6, 1992. 10 Summary of Deferred Compensation Plan for Directors and Executive Officers is incorporated herein by reference to Form 10-K filed for the fiscal year ending December 31, 1997. 11 Statement regarding computation of per share earnings (included in Note A of the notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.) 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1999. [Exhibit is being filed herewith] (Not deemed filed except for portions thereof which are specifically incorporated by reference into this Annual Report on Form 10-K.) 21 Subsidiaries of the Registrant [Exhibit is being filed herewith.] 23 Consent of Independent Accountant - Crowe, Chizek and Company LLP.[Exhibit is being filed herewith.] 27 Financial Data Schedule. [Exhibit is filed herewith.] Page 20 EX-13 2 ANNUAL REPORT TO SHAREHOLDERS MESSAGE FROM MANAGEMENT - ----------------------- We dedicate the accomplishments of the last year to you, our shareholders, who have supported our products, encouraged our expansion, and celebrated our achievements. Also, your company's growth could not have been reached without a loyal customer base who has permitted us to remain independent for 127 years. Some of those that have supported the company for many years, retired in 1999. For most, "retirement" means rest and relaxation, but these distinguished individuals still find the time to continue their work. Charles Lanham, retired from the Ohio Valley Bank Board in 1999, but will continue to coordinate our government relations efforts. Morris Haskins and Frank Mills continue to contribute through the Bank's Directors Emeritus Advisory Board. Lloyd "Shorty" Francis was also a member of the Directors Emeritus Advisory Board until his passing in the summer of 1999. His memory still inspires us every day. In 1999, we welcomed Steve Chapman and Wendell Thomas to the Ohio Valley Bank Board as the Bank continued its strategic expansion into West Virginia. A new SuperBank was opened in South Charleston and OVB acquired offices in Milton and Barboursville. These offices, plus the anticipated opening of our eighth SuperBank in east Huntington, will strengthen our presence in the growing I-64 corridor. These new SuperBanks are anchored by the traditional-style Milton Office. This expansion is patterned after the Jackson, Pike and Franklin County expansions of 1991 and 1996 which established offices that are now major income producers. OVBC's net income per share for the year was $1.22, an increase of 3.4 percent. Cash dividends for 1999 were $.53 per share compared to $.44 for 1998, an increase of 20.5 percent. At the close of business on December 31, 1999, the average of the Bid and Ask price of OVBC stock was $33.625 compared to $33.20 at December 31, 1998. All per share numbers are adjusted for the 25 percent stock split effective April 19, 1999. Thank you for your involvement in Ohio Valley Bank, your support of Loan Central, and your new commitment to Jackson Savings Bank. Sincerely, James L. Dailey Chairman and Chief Executive Officer Jeffrey E. Smith President and Chief Operating Officer Description of Business Ohio Valley Banc Corp commenced operations on October 23, 1992 as a one-bank holding company with The Ohio Valley Bank Company being the wholly-owned subsidiary. The Company's headquarters are located at 420 Third Avenue in Gallipolis, Ohio. The Ohio Valley Bank Company was organized on September 24, 1872. The Bank is insured under the Federal Deposit Insurance Act and is chartered under the banking laws of the State of Ohio. The company currently operates sixteen offices in Ohio and West Virginia. In April 1996, the Banc Corp opened a consumer finance company operating under the name of Loan Central, Inc. with offices in Gallipolis, South Point, Jackson and Waverly, Ohio. In December 1998, the Banc Corp purchased Jackson Savings Bank based in Jackson, Ohio, to be operated as a wholly-owned subsidiary. Jackson Savings Bank is insured under the Federal Deposit Insurance Act and is chartered under the banking laws of the State of Ohio. Form 10-K A copy of the Company's annual report on Form 10-K, as filed with the Securities and Exchange Commission, will be forwarded without charge to any stockholder upon written request to: Ohio Valley Banc Corp, Attention: Charles Lanham, Secretary, 420 Third Avenue, P.O. Box 240, Gallipolis, OH 45631. Immediately after the 1999 Shareholders' Meeting, Loan Central opened its fourth office. In May, Ohio Valley Bank signed an agreement to acquire two branches. In June, Jackson Savings Bank celebrated 100 years of service. In July, Ohio Valley Bank was named to the Cleveland Plain Dealer 100, a ranking of Ohio's top-performing companies. Two new SuperBanks were opened in August and October. A total of five offices were opened by OVBC subsidiaries this year. In December, the Ohio Valley Bank Board of Directors promoted Larry E. Miller, II, and E. Richard Mahan to Executive Vice President of Ohio Valley Bank and Senior Vice President of Ohio Valley Banc Corp. As executive vice president, Miller's area will encompass the Financial Bank Group, the Retail Bank Group, West Virginia Bank Group and Loan Central. Executive Vice President Mahan's experience will now benefit, not only the Commercial Bank Group, but also the Administrative Services Group and Jackson Savings Bank. Larry E. Miller, II Executive Vice President 1999 was a dynamic year in which your company made unparalleled investments into new markets. The crown jewel of the company's expansion efforts was our acquisition of two offices from a larger regional bank on September 24, 1999. The employees of the Financial Bank Group were very instrumental in introducing Ohio Valley Bank to over 3 thousand new customers and making the acquisition of 21.7 million dollars in new deposits a successful reality. Countless hours were spent by Operations personnel to ensure that each new account acquired was accurately merged into our operating system. Many other employees such as those in Network Administration and Accounting also played key roles in completing the acquisition. Yes, 1999 was a year of unparalleled investing by your company. We have sown the seeds for future growth and profitability. Now we must focus the company's financial and human resources to efficiently develop new relationships and future profits. This focus will lead the Financial, Retail and West Virginia Bank Groups, as well as Loan Central, throughout the year. OVB RETAIL BANK GROUP REPORT by Katrinka V. Hart, Senior Vice President In 1999, the Retail Bank Group created a new division for one of our most successful ventures... the SuperBank. The new division was very active over the past year. First, we opened our fifth SuperBank. It is located in the Wal-Mart at South Ridge (South Charleston), West Virginia. Second, a new SuperBank location was acquired at Pea Ridge (Barboursville), West Virginia, along with a traditional-style office in Milton, West Virginia. Third, we opened our seventh SuperBank. It is located in the Wal-Mart at South Point, Ohio. However, one of the Retail Bank Group's most significant achievements for 1999 was assisting the Administrative Services Group in the staffing and training of personnel for these new offices and the training of personnel gained through the Milton and Pea Ridge Office acquisition. Our goal is to staff our offices with knowledgeable employees that care about our customer's needs. We feel confident that our new employees will work diligently to bring continued profitability to you, our shareholders. OVB WEST VIRGINIA BANK GROUP REPORT by Mario P. Liberatore, Senior Vice President The West Virginia Bank Group expanded its presence in West Virginia by opening two SuperBanks, purchasing two branches from Huntington Bancshares and planning for one more Wal-Mart SuperBank. The Point Pleasant Branch continued its exciting growth showing 50% in deposit growth in 1999. The total growth of the West Virginia Bank Group was more than $36 million, a 100% deposit increase in 1999. The bank continued its community support by participation in three county fairs and various community activities; outstanding among these were the Point Pleasant River Front Park project, the new Mason County Health Department building, and the new Marshall University Mid Ohio Valley Center. With an experienced dedicated staff in place the West Virginia Bank Group is poised for an exciting 21st Century. LOAN CENTRAL REPORT by Cherie A. Barr, President INCREASED PROFITABILITY AND EXPANSION... a remarkable 1999 for Loan Central, Inc. We met the challenge by exceeding our ambitious goals for profitability and expansion with a 53% increase in operating earnings per share and a return on equity of 10.9%. The company saw net earnings increased to157.7 thousand from 102.7 thousand in 1998, an increase of almost 54%. The growth in net earnings was primarily due to an increased emphasis in real estate secured lending. This generated more fee income and helped to reduce losses with a more valuable secured portfolio. To help meet our customers needs, in 1999, we opened a fourth office in Waverly, Ohio and changed locations in Gallipolis and South Point. These offices provide increased visibility with easier access. We are constantly looking at ways technology can make our personal service better and more efficient. In 1998, we upgraded technology to include laser loan forms to make our loan specialists more productive. The cornerstones of our growth strategy are the value we placed on our customer relationships and the quality customer service that we provide. E. Richard Mahan Executive Vice President 1999 saw the Commercial Bank Group focused on continuing the quality service to our existing customer base, which has become our trademark, and looking to new horizons for expanded business opportunities. We continued our commercial and retail growth in our Franklin County region with significant increases in commercial loans and deposits. Additionally, we seized new opportunities for expansion of our customer base in the Kanawha Valley and Putnam County. We have developed a very good network in those areas. As 1999 drew to a close we again directed our attention to another region, Cabell County. With the acquisition of branches in that area we see a whole new set of possibilities for growth. Our new commercial loan volume for the year, up almost 18% over 1998, exceeded any prior year in commercial lending. The year brought additional changes for the Group with the retirement of friend and co-worker, Wendell Thomas and the addition of David Shaffer to Commercial Lending. We miss Wendell and the many years of experiences he had to share. As David assumes the management of the Commercial Lending functions, he brings with him many years of banking experience and new ideas which can help us maintain our service quality, contain costs and grow the portfolio profitably. The Shareholder Relations department has been extremely busy with the increased activity of new shareholders, increased participation in the Dividend Reinvestment and regulatory requirements which keep the work volume increasing. We are hoping to add an additional employee this coming year which will provide more support to our department and our shareholders. Change is an inevitable part of our business with increased competition, the changing needs of our customers and their companies. With these changes come a whole new set of opportunities. Encroachment of competition into our local markets causes us to be keenly aware that our customers are an important asset and as their needs change we must be familiar with those needs and ready to respond quickly. We believe as we adjust to changes and redirect our resources we can continue to meet the challenges of the 21st century. We will continue to emphasize quality customer service, more efficient work processes and profitability for our company and shareholders. We believe that the year 2000 can be another excellent year of growth for all of our lending region. I am also looking forward to the many challenges the year holds, including my new responsibilities to the Administrative Services Group and Jackson Savings Bank. OVB ADMINISTRATIVE SERVICES GROUP REPORT by Sue Ann Bostic, Senior Vice President As we enter each new year and I reflect back on the old one, I think, "this year can't be as busy as the last one." However, 1999 was indeed as hectic as 1998. The people of the Administrative Services Bank Group hardly had time to catch their breath between acquisitions, construction, hiring, and training; but an exciting year it was. We kept on our toes with the construction of two new branches, inside the South Charleston Wal-Mart and the South Point Wal-Mart. Then as fall approached, there was an acquisition from Huntington Banks of the Milton Branch and the Pea Ridge Kroger SuperBank. Our couriers had to learn new routes and time constraints in order to get everyone's daily processing back to our Operations Center on time. Our mail processing personnel were very excited to add a state-of-the-art piece of mail equipment which cut their processing time in half. With 524,007 pieces of mail processed in 1999 (43,667 monthly) this new equipment was a welcomed addition. With the opening of new branches comes the hiring of new personnel. A total of 71 employees plus 15 seasonal were added to OVB's staff in 1999. Two hundred seventy-five (275) employees were paid as of the last payroll of the year. Needless to say, Human Resources keeps busy tracking these employees and their benefit plans, vacation/sick days, not to mention every day problems. Of course, with hiring comes training. These 86 new employees needed in-house orientation and classroom training before they went into respective branches for approximately four weeks of additional window training. With two full time trainers and the support of the Retail Bank Group, this seemingly endless task was accomplished. It's exciting to be part of the OVB team and the growth we have seen. The Administrative Services Group is looking forward to going into 2000 with the past year behind us and many new opportunities and challenges ahead of us. JACKSON SAVINGS BANK by Harold A. Howe, President 100 YEARS OF SERVICE AND COMMITMENT TO JACKSON COUNTY...on June 30, 1999, Jackson Savings Bank celebrated its 100th anniversary with a customer appreciation open house and the sale of 100 commemorative baskets, from which proceeds were donated to the local YMCA. The past year held a few changes for the 100-year-old institution. In the past, Jackson Savings Bank primarily handled real estate loans for 1-4 family dwellings. In the second quarter of 1999, installment loans, car loans and personal loans were added to our lending portfolio. Jackson Savings Bank's affiliation with Ohio Valley Banc Corp has enabled us to be more competitive. We are still the Jackson Savings Bank; however, we have expanded our product line to offer more of what our customers want and need. In 2000, new products are being considered that would take advantage of the new financial modernization laws recently enacted. FINANCIAL HIGHLIGHTS 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- NET INCOME ($000) $ 4,292 $ 4,130 $ 3,782 $ 3,349 $ 2,938 TOTAL ASSETS ($000) $522,057 $447,448 $379,088 $355,986 $331,845 INCOME PER SHARE $ 1.22 $ 1.18 $ 1.10 $ 1.00 $ .90 DIVIDENDS PER SHARE $ .53 .44 .42 .40 .38 DIRECTORS OHIO VALLEY BANC CORP Phil A. Bowman Keith Brandeberry Mining Consultant and Developer Physician W. Lowell Call James L. Dailey Vice President of Sausage Production, Chairman and Chief Executive Officer, Bob Evans Farms, Inc. Ohio Valley Banc Corp. Robert H. Eastman Merrill L. Evans President, Farmer, Ohio Valley Supermarkets, Inc. President, Evans Enterprises, Inc. Warren F. Sheets Jeffrey E. Smith Attorney President, Chief Operating Officer and Treasurer, Ohio Valley Banc Corp. Thomas E. Wiseman President, The Wiseman Agency, Inc. OFFICERS OHIO VALLEY BANC CORP James L. Dailey Jeffrey E. Smith Chairman and President, Chief Operating Officer, Chief Executive Officer and Treasurer Charles C. Lanham E. Richard Mahan Governmental Relations and Senior Vice President Secretary Larry E. Miller, II Cherie A. Barr Senior Vice President Vice President Sue Ann Bostic Katrinka V. Hart Vice President Vice President Harold A. Howe Mario Liberatore Vice President Vice President Cindy H. Johnston Paula W. Salisbury Assistant Secretary Assistant Secretary DIRECTORS AND OFFICERS JACKSON SAVINGS BANK Harold A. Howe Charles C. Lanham President and Director Secretary and Director Phil A Bowman James L. Dailey Director Director Wendell B. Thomas Cindy H. Johnston Director Assistant Secretary Paula W. Salisbury Assistant Secretary OFFICERS LOAN CENTRAL Cherie A. Barr Timothy R. Brumfield President and Secretary Manager, Gallipolis Office Renae L. Hughes T. Joe Wilson Manager, Jackson Office Manager, South Point Office DIRECTORS OHIO VALLEY BANK COMPANY Phil A. Bowman Keith R. Brandeberry W. Lowell Call Steven B. Chapman CPA James L. Dailey Robert H. Eastman Merrill L. Evans Art E. Hartley, Sr. Chairman of the Board, City Ice and Fuel, Inc. Harold A. Howe Warren F. Sheets President, Jackson Savings Bank Jeffrey E. Smith Wendell B. Thomas Retired Bank Executive Lannes C. Williamson Thomas E. Wiseman President, L. Williamson Pallets, Inc. DIRECTOR EMERITUS Morris E. Haskins Charles C. Lanham Retired Bank Executive Governmental Relations & Secretary OVB Frank H. Mills, Jr. C. Leon Saunders Farmer Retired Bank Executive OFFICERS OHIO VALLEY BANK COMPANY James L. Dailey Jeffrey E. Smith Chairman and President and Chief Executive Officer Chief Operating Officer Charles C. Lanham E. Richard Mahan Governmental Relations and Secretary Executive Vice President Larry E. Miller, II Sue Ann Bostic Executive Vice President Senior Vice President, Administrative Services Group Katrinka V. Hart Mario P. Liberatore Senior Vice President, Senior Vice President, Retail Bank Group West Virginia Bank Group Patricia L. Davis Sandra L. Edwards Vice President, Vice President, Research & Technical Applications Management Information Systems Hugh H. Graham, Jr. Bryan W. Martin Vice President, Vice President, Superbank Division Facilities and Technical Services Jennifer L. Osborne Richard D. Scott Vice President, Vice President, Retail Lending Trust David L. Shaffer Tom R. Shepherd Vice President, Vice President, Commercial Lending Marketing Patrick H. Tackett Molly K. Tarbett Vice President, Vice President, Western Division Branch Administrator Retail Operations Darren R. Blake Robert T. Hennesy Assistant Vice President, Assistant Vice President, Network Administrator Retail Indirect Lending Manager Larry E. Lee Philip E. Miller Assistant Vice President, Assistant Vice President, Cash Services and Security Region Manager Franklin County Scott W. Shockey Timothy V. Stevens Assistant Vice President, Assistant Vice President, Comptroller Region Manager Cabell County Rick A. Swain Phyllis P. Wilcoxon Assistant Vice President, Assistant Vice President, Region Manager Pike County Shareholder Relations Kyla Carpenter Judy K. Hall Assistant Cashier, Assistant Cashier, Marketing Officer Manager, Training and Educational Development Brenda G. Henson Keith A. Johnson Assistant Cashier, Assistant Cashier, Manager Customer Service Collections Manager Dians L. Parks Christopher S. Petro Assistant Cashier, Assistant Cashier, Internal Auditor Regulatory Reporting Manager Linda L. Plymale Richard P. Speirs Assistant Cashier, Assistant Cashier, Operations Officer Maintenance Technical Supervisor Stephanie L. Stover Cindy H. Johnston Assistant Cashier Assistant Secretary Retail Lending Operations Manager Paula W. Salisbury Assistant Secretary WEST VIRGINIA ADVISORY BOARD Anna P. Barnitz Richard L. Handley Business Manager/Treasurer Educator, Bob's Market and Greenhouses, Inc. Mason County Board of Education Art E. Hartley, Sr. Gregory K. Hartley President, City Ice and Fuel, Inc. Charles C. Lanham Mario P. Liberatore Advisory Board Chairman and Senior Vice President W.V. Bank Group John C. Musgrave Trenton M. Stover West Virginia Lottery Director CPA/Owner, Trenton Stover CPA Lannes C. Williamson R. Raymond Yauger President, Yauger Farm Supply, Inc. SELECTED FINANCIAL DATA Years Ended December 31 SUMMARY OF OPERATIONS: 1999 1998 1997 1996 1995 (dollars in thousands, except per share data) Total interest income $ 40,006 $ 35,191 $ 31,453 $ 28,252 $ 26,187 Total interest expense 18,837 15,691 14,517 12,856 13,227 Net interest income 21,169 19,500 16,936 15,396 12,960 Provision for loan losses 2,303 2,295 1,245 1,328 634 Total other income 3,132 2,760 1,860 1,419 1,333 Total other expenses 16,060 14,201 12,293 10,738 9,509 Income before income taxes 5,938 5,764 5,258 4,749 4,150 Income taxes 1,646 1,634 1,476 1,400 1,212 Net income 4,292 4,130 3,782 3,349 2,938 PER SHARE DATA(1): Net income per share $ 1.22 $ 1.18 $ 1.10 $ 1.00 $ .90 Cash dividends per share $ .53 $ .44 $ .42 $ .40 $ .38 Weighted average number of shares outstanding 3,530,203 3,502,366 3,426,600 3,341,274 3,253,684 AVERAGE BALANCE SUMMARY: Total loans $382,353 $305,392 $271,535 $248,833 $217,907 Securities (2) 73,783 74,478 73,303 76,907 97,609 Deposits 376,050 319,493 304,296 290,790 281,158 Shareholders' equity 41,730 38,639 34,449 30,958 27,900 Total assets 488,632 408,482 369,552 342,588 334,942 PERIOD END BALANCES: Total loans $411,158 $347,130 $280,267 $264,660 $227,217 Securities (2) 72,186 72,419 76,711 71,135 87,771 Deposits 405,331 327,317 306,037 294,325 284,785 Shareholders' equity 42,708 40,680 36,834 32,874 29,861 Total assets 522,057 447,448 379,088 355,986 331,845 KEY RATIOS: Return on average assets .88% 1.01% 1.02% .98% .88% Return on average equity 10.29% 10.69% 10.98% 10.82% 10.53% Dividend payout ratio 43.73% 37.13% 37.81% 39.53% 41.59% Average equity to average assets 8.54% 9.46% 9.32% 9.04% 8.33% (1) Restated for stock splits as appropriate. (2) Securities include interest-bearing balances with banks. CONSOLIDATED STATEMENTS OF CONDITION As of December 31 1999 1998 ----------------- ---- ---- (dollars in thousands) ASSETS Cash and noninterest-bearing deposits with banks $ 19,000 $ 12,342 Federal funds sold 375 -------- -------- Total cash and cash equivalents 19,000 12,717 Interest-bearing balances with banks 806 795 Securities available-for-sale 55,371 26,255 Securities held-to-maturity 16,009 45,369 Total Loans 411,158 347,130 Less: Allowance for loan losses (5,055) (4,277) -------- -------- Net Loans 406,103 342,853 Premises and equipment 9,888 8,360 Accrued income receivable 3,298 2,723 Intangible assets, net 1,412 Other assets 10,170 8,376 -------- -------- Total assets $522,057 $447,448 ======== ======== LIABILITIES Noninterest-bearing deposits $ 46,444 $ 45,961 Interest-bearing deposits 358,887 281,356 -------- -------- Total Deposits 405,331 327,317 Securities sold under agreements to repurchase 16,788 19,066 Other borrowed funds 51,231 55,743 Accrued liabilities 5,999 4,642 -------- -------- Total liabilities 479,349 406,768 -------- -------- SHAREHOLDERS' EQUITY Common stock ($1 stated value: 10,000,000 shares authorized; 3,548,572 shares issued and 3,542,983 shares outstanding at December 31, 1999; 5,000,000 shares authorized; 2,818,413 shares issued and outstanding at December 31, 1998) 3,549 2,818 Surplus 28,454 27,598 Retained earnings 11,491 9,797 Accumulated other comprehensive income, net of tax (597) 467 Treasury stock (5,589 shares at cost) (189) -------- -------- Total shareholders' equity 42,708 40,680 -------- -------- Total liabilities and shareholders' equity $522,057 $447,448 ======== ======== See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31 1999 1998 1997 ------------------------------- ---- ---- ---- (dollars in thousands, except per share data) INTEREST INCOME: Interest and fees on loans $35,539 $30,550 $26,858 Interest on taxable securities 3,200 3,212 3,361 Interest on nontaxable securities 826 794 635 Dividends 290 245 203 Other interest 151 390 396 ------- ------- ------- Total interest income 40,006 35,191 31,453 INTEREST EXPENSE: Interest on deposits 15,602 13,489 13,163 Interest on repurchase agreements 510 685 435 Interest on other borrowed funds 2,725 1,517 919 ------- ------- ------- Total interest expense 18,837 15,691 14,517 ------- ------- ------- NET INTEREST INCOME 21,169 19,500 16,936 Provision for loan losses 2,303 2,295 1,245 ------- ------- ------- Net interest income after provision for loan losses 18,866 17,205 15,691 ------- ------- ------- OTHER INCOME: Service charges on deposit accounts 1,237 969 788 Trust division income 225 212 192 Other operating income 1,353 1,137 880 Net gain on sale of available-for-sale securities 317 442 ------- ------- ------- Total other income 3,132 2,760 1,860 ------- ------- ------- OTHER EXPENSE: Salaries and employee benefits 9,190 8,089 7,312 Occupancy expense 1,041 764 537 Furniture and equipment expense 1,115 904 749 Corporation franchise tax 356 368 367 Data processing expense 316 346 419 Other operating expenses 4,042 3,730 2,909 ------- ------- ------- Total other expense 16,060 14,201 12,293 ------- ------- ------- Income before income taxes 5,938 5,764 5,258 Provision for income taxes 1,646 1,634 1,476 ------- ------- ------- NET INCOME $ 4,292 $ 4,130 $ 3,782 ======= ======= ======= Earnings per share $ 1.22 $ 1.18 $ 1.10 ======= ======= ======= See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997 Accumulated Other Total Common Retained Comprehensive Treasury Shareholders' (dollars in thousands) Stock Surplus Earnings Income Stock Equity ----- ------- -------- ------ ----- ------ BALANCES AT JANUARY 1, 1997 $13,257 $12,964 $ 6,214 $ 439 $32,874 Comprehensive income: Net income 3,782 3,782 Net change in unrealized gain on available-for-sale securities 131 131 ------- Total comprehensive income 3,913 Change in stated value from $10 to $1 per share (11,937) 11,937 Common Stock split, 33-1/3% 442 (442) Cash paid in lieu of fractional shares in stock split (11) (11) Common Stock issued, 6,500 shares 6 231 237 Common Stock issued through dividend reinvestment, 35,422 shares 108 1,143 1,251 Cash dividends, $.42 per share (1,430) (1,430) ------- ------- ------- ------- ------- ------- BALANCES AT DECEMBER 31, 1997 1,876 26,275 8,113 570 36,834 Comprehensive income: Net income 4,130 4,130 Net change in unrealized gain on available-for-sale securities (103) (103) ------- Total comprehensive income 4,027 Common Stock split, 50% 906 (906) Cash paid in lieu of fractional shares in stock split (7) (7) Common Stock issued, 5,450 shares 5 223 228 Common Stock issued through dividend reinvestment, 31,196 shares 31 1,100 1,131 Cash dividends, $.44 per share (1,533) (1,533) ------- ------- ------- ------- -------- ------- BALANCES AT DECEMBER 31, 1998 2,818 27,598 9,797 467 40,680 Comprehensive income: Net income 4,292 4,292 Cumulative effect of securities transfers, net 167 167 Net change in unrealized gain on available-for-sale securities (1,231) (1,231) ------- Total comprehensive income 3,228 Common Stock split, 25% 706 (706) Cash paid in lieu of fractional shares in stock split (15) (15) Common Stock issued, 7,500 shares 8 241 249 Common Stock issued through dividend reinvestment, 16,756 shares 17 615 632 Cash dividends, $.53 per share (1,877) (1,877) Shares acquired for treasury, 5,589 shares $ (189) (189) ------- ------- ------- ------- ------- ------- BALANCES AT DECEMBER 31, 1999 $ 3,549 $28,454 $11,491 $ (597) $ (189) $42,708 ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 1999 1998 1997 ------------------------------- ---- ---- ---- (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,292 $ 4,130 $ 3,782 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,157 947 705 Net amortization and accretion of securities 171 137 47 Amortization of intangible assets 30 Deferred tax benefit (262) (384) 15 Provision for loan losses 2,303 2,295 1,245 Contribution of common stock to ESOP 249 228 237 FHLB stock dividend (280) (190) (172) Net gain on sale of available-for-sale securities (317) (442) Change in accrued income receivable (575) (220) (148) Change in accrued liabilities 1,357 735 1,112 Change in other assets (1,873) 568 (1,339) ------- ------- ------- Net cash provided by operating activities 6,252 7,804 5,484 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 10,587 9,300 4,500 Purchases of securities available-for-sale (13,438) (2,917) (6,314) Proceeds from maturities of securities held-to-maturity 2,841 12,850 14,390 Purchases of securities held-to-maturity (1,347) (18,942) (17,900) Proceeds from sale of equity securities 323 1,075 Change in interest-bearing deposits in other banks (11) 3,128 (478) Net increase in loans (65,553) (68,271) (16,179) Purchases of premises and equipment (2,686) (1,981) (1,666) Purchases of insurance contracts (460) (580) (635) ------- ------- ------- Net cash used in investing activities (69,744) (66,338) (24,282) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in deposits 58,653 21,280 11,712 Cash and cash equivalents received in assumption of deposits, net of assets acquired 19,361 Cash dividends (1,877) (1,533) (1,430) Cash paid in lieu of fractional shares in stock split (15) (7) (11) Proceeds from issuance of common stock 632 1,131 1,251 Purchases of treasury stock (189) Change in securities sold under agreements to repurchase (2,278) 6,235 4,117 Proceeds from long-term borrowings 8,500 35,164 11,425 Repayment of long-term borrowings (9,818) (8,498) (6,681) Change in other short-term borrowings (3,194) 9,598 (2,475) ------- ------- ------- Net cash used in financing activities 69,775 63,370 17,908 ------- ------- ------- CASH AND CASH EQUIVALENTS: Change in cash and cash equivalents 6,283 4,836 (890) Cash and cash equivalents at beginning of year 12,717 7,881 8,771 ------- ------- ------- Cash and cash equivalents at end of year $19,000 $12,717 $ 7,881 ======= ======= ======= CASH PAID DURING THE YEAR FOR: Interest $17,496 $15,578 $13,861 Income taxes 2,075 1,715 1,218
See accompanying notes to consolidated financial statements Note A - Summary of Significant Accounting Policies Unless otherwise indicated, amounts are in thousands, except per share data. Principles of Consolidation: The consolidated financial statements include the accounts of the Ohio Valley Banc Corp. (the Company) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the Bank), Loan Central, a consumer finance company, and Jackson Savings Bank (Jackson). All significant intercompany balances and transactions have been eliminated. Industry Segment Information: The Company is engaged in the business of commercial and retail banking and trust services, with operations conducted through 21 offices located in central and southeastern Ohio as well as western West Virginia. These communities are the source of substantially all of the Company's deposit, loan and trust services. The majority of the Company's income is derived from commercial and retail business lending activities. Management considers the Company to operate in one segment, banking. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas involving the use of management's estimates and assumptions that are more susceptible to change in the near term involve the allowance for loan losses, the fair value of certain securities, the fair value of financial instruments and the determination and carrying value of impaired loans. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, noninterest-bearing deposits with banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. The Company reports net cash flows for customer loan transactions, deposit transactions, short-term borrowings and interest-bearing deposits with other financial institutions. Securities: The Company classifies securities into held-to-maturity and available-for-sale categories. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Securities classified as available-for-sale include marketable equity securities and other securities that management intends to sell or that could be sold for liquidity, investment management or similar reasons even if there is not a present intention of such a sale. Available-for-sale securities are reported at fair value, with unrealized gains or losses included as a separate component of equity, net of tax. Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method. Gains and losses are recognized upon the sale of specific identified securities on the completed transaction basis. Securities are written down to fair value when a decline in fair value is not temporary. Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days (180 days for residential mortgages). Payments received on such loans are reported as principal reductions. Allowance for Loan Losses: Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases to the allowance are recorded by a provision for loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral value, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem situations, the entire allowance is available for any charge-offs that occur. A loan is charged off by management as a loss when deemed uncollectable, although collection efforts continue and future recoveries may occur. Summary of Significant Accounting Policies (continued) Loans are considered impaired if full principal or interest payments are not anticipated. Impaired loans are carried at the present value of expected cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, credit card and automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower's business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often also considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectable. This typically occurs when the loan is 120 or more days past due. Concentrations of Credit Risk: The Company, through its subsidiaries, grants residential, consumer and commercial loans to customers located primarily in the southeastern Ohio and western West Virginia areas. The following represents the composition of the loan portfolio at December 31, 1999: % of Total Loans ---------------- Real Estate loans 49.04% Commercial and industrial loans 29.08% Consumer loans 21.63% All other loans .25% ------ 100.00% ====== Approximately 6.54% of total loans are unsecured. The Bank, in the normal course of its operations, conducts business with correspondent financial institutions. Balances in correspondent accounts, investments in federal funds, certificates of deposit and other short-term securities are closely monitored to ensure that prudent levels of credit and liquidity risks are maintained. At December 31, 1999, the Bank's primary correspondent balance was $7,659 at the Federal Reserve Bank, Cleveland, Ohio. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the declining balance and straight-line methods over the estimated useful lives of the various assets. Maintenance and repairs are expensed and major improvements are capitalized. Other Real Estate: Real estate acquired through foreclosure or deed-in-lieu of foreclosure is included in other assets. Such real estate is carried at the lower of investment in the loan or estimated fair value of the property less estimated selling costs. Any reduction to fair value at the time of acquisition is accounted for as a loan charge-off. Any subsequent reduction in fair value is recorded as a loss on other assets. Costs incurred to carry other real estate are charged to expense. Other real estate owned totaled $30 at December 31, 1999 and $31 at December 31, 1998. There were no transfers of loans to other real estate in 1999 or 1997. Transfers of loans to other real estate were $163 in 1998. Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. Per Share Amounts: Earnings per share is based on net income divided by the following weighted average number of shares outstanding during the periods: 3,530,203 for 1999, 3,502,366 for 1998 and 3,426,600 for 1997. The Company had no dilutive securities outstanding for any period presented. All earnings and dividends per share disclosures have been restated to retroactively reflect stock splits of 25%, 50% and 33 1/3% declared in 1999, 1998 and 1997 respectively. Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale which are also recognized as separate components of equity. The accounting standard that requires reporting comprehensive income first applies for 1998, with prior information restated to be comparable. Reclassifications: The consolidated financial statements for 1998 and 1997 have been reclassified to conform with the presentation for 1999. Such reclassifications had no effect on the net results of operations. NOTE B - SECURITIES The amortized cost and estimated fair value of securities as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1999 Cost Gains Losses Value - ----------------- ---- ----- ------ ----- Securities Available-for-Sale ----------------------------- U.S. Treasury securities $ 7,490 $ 21 $ (1) $ 7,510 U.S. Government agency securities 42,328 1 (807) 41,522 Mortgage-backed securities 2,307 (118) 2,189 Marketable equity securities 4,150 4,150 ------- ------ ----- ------- Total securities $56,275 $ 22 $(926) $55,371 ======= ====== ===== ======= Securities Held-to-Maturity --------------------------- Obligations of states and political subdivisions $15,690 $ 151 $(247) $15,594 Mortgage-backed securities 319 1 (22) 298 ------- ------ ----- ------- Total securities $16,009 $ 152 $(269) $15,892 ======= ====== ===== ======= Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1998 Cost Gains Losses Value - ----------------- ---- ----- ------ ----- Securities Available-for-Sale ----------------------------- U.S. Treasury securities $17,807 $ 336 $18,143 U.S. Government agency securities 4,057 67 $ (10) 4,114 Marketable equity securities 3,591 407 3,998 ------- ------ ----- ------- Total securities $25,455 $ 810 $ (10) $26,255 ======= ====== ===== ======= Securities Held-to-Maturity --------------------------- U.S. Treasury securities $ 100 $ 100 U.S. Government agency securities 27,693 $ 431 $ (12) 28,112 Obligations of states and political subdivisions 17,195 571 (21) 17,745 Mortgage-backed securities 381 1 (20) 362 ------- ------ ----- ------- Total securities $45,369 $1,003 $ (53) $46,319 ======= ====== ===== =======
On April 1, 1999, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 allows the company a one time reclassification of securities held-to-maturity to classification as available-for-sale or trading. The Company transferred securities with a par value of $27,500 previously classified as held-to-maturity to available-for-sale upon adoption. The unrealized gain, net of tax, on the securities transferred totaled $167. The Company has no derivative or hedging activity covered by SFAS No. 133. Securities with a carrying value of approximately $58,984 at December 31, 1999 and $55,851 at December 31, 1998 were pledged to secure public deposits and for other purposes as required or permitted by law. The amortized cost and estimated fair value of debt securities at December 31, 1999, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Available-for-Sale Held-to-Maturity ------------------ ---------------- Estimated Estimated Amortized Fair Amortized Fair Debt Securities: Cost Value Cost Value ---- ----- ---- ----- Due in one year or less $ 6,515 $ 6,524 $ 2,389 $ 2,397 Due in one to five years 43,303 42,508 7,486 7,582 Due in five to ten years 3,460 3,422 Due after ten years 2,355 2,193 Mortgage-backed securities 2,307 2,189 319 298 ------- ------- ------- ------- Total debt securities $52,125 $51,221 $16,009 $15,892 ======= ======= ======= ======= Proceeds from the sale of equity securities in 1999 were $323 with gross gains of $317 realized. Proceeds from the sale of equity securities during 1998 were $1,075 with gross gains of $459 and gross losses of $17 realized. There were no sales of debt and equity securities during 1997. NOTE C - LOANS Loans are comprised of the following at December 31: 1999 1998 ---- ---- Real estate loans $201,625 $163,650 Commercial and industrial loans 119,585 96,116 Consumer loans 88,942 85,664 All other loans 1,006 1,700 -------- -------- Total Loans $411,158 $347,130 ======== ======== NOTE D - ALLOWANCE FOR LOAN LOSSES Following is an analysis of changes in the allowance for loan losses for years ended December 31: 1999 1998 1997 ---- ---- ---- Balance, beginning of year $4,277 $3,390 $3,180 Loans charged-off: Real estate 41 110 39 Commercial 454 130 215 Consumer 1,298 1,433 961 ------ ------ ------ Total loans charged-off 1,793 1,673 1,215 Recoveries of loans: Real estate 13 40 1 Commercial 23 47 41 Consumer 232 178 138 ------ ------ ------ Total recoveries of loans 268 265 180 Net loan charge-offs (1,525) (1,408) (1,035) Provision charged to operations 2,303 2,295 1,245 ------ ------ ------ Balance, end of year $5,055 $4,277 $3,390 ====== ====== ====== Information regarding impaired loans is as follows: 1999 1998 ---- ---- Balance of impaired loans $1,413 $624 ====== ==== Portion of impaired loan balance for which an allowance for credit losses is allocated $1,413 $624 ====== ==== Portion of allowance for loan losses allocated to the impaired loan balance $ 600 $275 ====== ==== Average investment in impaired loans for the year $1,570 $632 ====== ==== Interest on impaired loans was not material for years ending 1999 and 1998. NOTE E - PREMISES AND EQUIPMENT Following is a summary of premises and equipment at December 31: 1999 1998 ---- ---- Land $ 1,375 $ 1,166 Buildings 8,435 7,149 Furniture and equipment 6,784 5,594 ------- ------- 16,594 13,909 Less accumulated depreciation 6,706 5,549 ------- ------- Total Premises and Equipment $ 9,888 $ 8,360 ======= ======= The following is a summary of the future minimum lease payments for facilities leased by the Company. Lease payments were $255 in 1999 and $152 in 1998. 2000 $ 315 2001 306 2002 298 2003 271 2004 174 Thereafter 418 ------ $1,782 ====== NOTE F - DEPOSITS Following is a summary of interest-bearing deposits at December 31: 1999 1998 ---- ---- NOW accounts $ 74,447 $ 47,190 Savings and Money Market 42,095 53,727 Time: IRA accounts 34,938 30,870 Certificates of Deposit: In denominations under $100,000 136,824 105,480 In denominations of $100,000 or more 70,583 44,089 -------- -------- Total time deposits 242,345 180,439 -------- -------- Total interest-bearing deposits $358,887 $281,356 ======== ======== Following is a summary of total time deposits by remaining maturities at December 31: 1999 1998 ---- ---- Within one year $178,213 $119,747 From one to two years 40,781 35,851 From two to three years 10,412 9,247 From three to four years 10,663 3,980 From four to five years 937 10,308 Thereafter 1,339 1,306 -------- -------- Totals $242,345 $180,439 ======== ======== NOTE G - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Following is a summary of securities sold under agreements to repurchase at December 31: 1999 1998 ---- ---- Balance outstanding at period end $16,788 $19,066 ------- ------- Weighted average interest rate at period end 4.54% 3.96% ------- ------- Average amount outstanding during the year $13,961 $18,148 ------- ------- Approximate weighted average interest rate during the year 3.65% 3.77% ------- ------- Maximum amount outstanding as of any month end $16,788 $25,112 ------- ------- Securities underlying these agreements at year-end were as follows: Carrying value of securities $36,326 $38,485 ------- ------- Fair Value $35,793 $39,195 ------- ------- NOTE H - OTHER BORROWED FUNDS Other borrowed funds at December 31, 1999 and 1998 are comprised of advances from the Federal Home Loan Bank (FHLB), promissory notes and Federal Reserve Bank Notes. At year-end, other borrowed funds were as follows: 1999 2000 ---- ---- FHLB Borrowings $38,746 $47,714 Promissory Notes 3,985 7,919 FRB Notes 8,500 110 ------- ------- $51,231 $55,743 ======= ======= Pursuant to collateral agreements with the FHLB, advances are secured by certain qualifying first mortgage loans and by FHLB stock which total $58,120 and $3,891 at December 31, 1999. Fixed rate FHLB advances of $36,246 mature through 2008 and have interest rates ranging from 4.88% to 6.15%. In addition, variable rate FHLB borrowings represent $2,500. Promissory notes, issued primarily by the parent company, have fixed rates of 5.50% to 7.00% and are due at various dates through a final maturity date of May 29, 2002. FRB notes are variable rate borrowings with balances that are subject to change daily. Scheduled principal payments over the next five years: FHLB borrowings Promissory notes FRB Notes Total --------------- ---------------- --------- ----- 2000 $16,468 $3,967 $8,500 $28,935 2001 5,615 13 5,628 2002 5,282 5 5,287 2003 3,098 3,098 2004 85 85 Thereafter 8,198 8,198 ------- ------ ------ ------- $38,746 $3,985 $8,500 $51,231 ======= ====== ====== ======= Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits required by law totaled $24,000 at December 31, 1999 and $18,189 at December 31, 1998. Various investment securities from the Bank used to collateralize FRB notes totaled $9,225 at December 31, 1999 and $6,350 at December 31, 1998. Promissory notes were unsecured at December 31, 1999 and 1998. NOTE I - INCOME TAXES The provision for federal income taxes consists of the following components: 1999 1998 1997 ---- ---- ---- Current tax expense $1,908 $2,018 $1,461 Deferred tax expense (benefit) (262) (384) 15 ------ ------ ------ Total federal income taxes $1,646 $1,634 $1,476 ====== ====== ====== The sources of gross deferred tax assets and gross deferred tax liabilities at December 31: 1999 1998 ---- ---- Items giving rise to deferred tax assets: Allowance for loan losses in excess of tax reserve $1,334 $1,136 Deferred compensation 401 270 Unrealized loss on securities available-for-sale 307 Other 90 60 Items giving rise to deferred tax liabilities: Investment accretion (25) (25) Depreciation (124) (122) FHLB stock dividends (333) (237) Unrealized gain on securities available-for-sale (241) Lease receivables (46) (42) Other (8) (13) ------ ------ Net deferred tax asset $1,596 $ 786 ====== ====== The difference between the financial statement tax provision and amounts computed by applying the statutory federal income tax rate of 34% to income before taxes is as follows: 1999 1998 1997 ---- ---- ---- Statutory tax $2,019 $1,960 $1,788 Effect of nontaxable interest and dividends (297) (298) (242) Nondeductible interest expense 46 46 38 Insurance contracts (117) (110) (99) Other items (5) 36 (9) ------ ------ ------ Total federal income taxes $1,646 $1,634 $1,476 ====== ====== ====== Taxes attributable to gains on sale of securities totaled $108 and $150 in 1999 and 1998. NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. Following is a summary of such commitments at December 31: Commitments to extend credit 1999 1998 Fixed rate $ 3,033 $ 1,379 Variable rate 37,721 36,611 Standby letters of credit 9,072 8,116 The interest rate on fixed rate commitments ranged from 6.875% to 17.90% at December 31, 1999. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. There are various contingent liabilities that are not reflected in the financial statements, including claims and legal action arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations. The bank subsidiary of the Company is required to maintain average reserve balances with the Federal Reserve Bank or as cash in the vault. The amount of those reserve balances for the year ended December 31, 1999, was approximately $8,394. NOTE K - RELATED PARTY TRANSACTIONS Certain directors, executive officers and companies in which they are affiliated were loan customers during 1999. A summary of activity on these borrower relationships with aggregate debt greater than $60 is as follows: Total loans at January 1, 1999 $14,346 New loans 1,586 Repayments (2,120) Other changes 645 ------- Total loans at December 31, 1999 $14,457 ======= Other changes include adjustment for loans applicable to one reporting period that are excludable from the other reporting period. In addition, certain directors, executive officers and companies in which they are affiliated were recipients of promissory notes issued by the parent company in the amount of $3,430. NOTE L - EMPLOYEE BENEFITS The Bank has a profit-sharing plan for the benefit of its employees and their beneficiaries. Contributions to the plan are determined by the Board of Directors. Contributions charged to expense were $131, $111 and $128 for 1999, 1998 and 1997. The Company maintains an Employee Stock Ownership Plan (ESOP) covering substantially all of its employees. The Company makes discretionary contributions to the plan which are allocated to plan participants based on relative compensation. The total number of shares held by the Plan, all of which have been allocated to participant accounts were 178,872 and 132,017 at December 31, 1999 and 1998. In addition, the Bank made contributions to its ESOP Trust as follows: Years ended December 31 1999 1998 1997 ---- ---- ---- Number of shares issued 7,500 5,450 6,500 ===== ===== ===== Value of stock contributed $249 $228 $237 Cash contributed 12 19 ---- ---- ---- Total charged to expense $261 $228 $256 ==== ==== ==== In December 1996, life insurance contracts with a cash surrender value of $5,210 were purchased by the Company, the owner the of policies. The purpose of these contracts was to replace a current group life insurance program for executive officers and implement a supplemental retirement program in 1997. The cost of providing the benefits to the participants of the supplemental retirement program is expected to be offset by the earnings on the life insurance contracts. NOTE M - OTHER COMPREHENSIVE INCOME Other comprehensive income components and related taxes for the years ended December 31, are as follow: 1999 1998 1997 Unrealized holding gains (losses) on ---- ---- ---- available-for-sale securities $(1,548) $ 286 $ 198 Cumulative effect of securities transferred 253 Less: Reclassification adjustment for gains (losses) later recognized in income 317 442 ------- ----- ----- Net unrealized gain (losses) (1,612) (156) 198 Tax effect (548) (53) 67 ------- ----- ----- Other comprehensive income $(1,064) $(103) $ 131 ======= ===== ===== NOTE N - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Short-term Investments: For short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities: For securities, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar instruments. Loans: The fair value of fixed rate loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair market value of commitments is not material at December 31, 1999 or 1998. Life Insurance Cash Surrender Value: For life insurance cash surrender value, the carrying amount, is a reasonable estimate of fair value. Deposit Liabilities: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: For other borrowed funds, rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value. For securities sold under agreements to repurchase, carrying value is a reasonable estimate of fair value. Accrued Interest Receivable and Payable: For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value. The estimated fair values of the Company's financial instruments at December 31, are as follows: 1999 1998 ---- ---- Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- Financial assets: Cash and short-term investments $ 19,806 $ 19,806 $ 13,512 $13,512 Securities 67,230 67,113 68,039 68,989 FHLB stock 4,150 4,150 3,585 3,585 Loans 406,103 410,373 342,853 348,695 Accrued interest receivable 3,298 3,298 2,723 2,723 Life insurance cash surrender value 7,854 7,854 7,056 7,056 Financial liabilities: Deposits (405,331) (405,386) (327,317) (328,516) Securities sold under agreements to repurchase (16,788) (16,788) (19,066) (19,066) Other borrowed funds (51,231) (50,141) (55,743) (55,835) Accrued interest payable (4,487) (4,487) (3,147) (3,147) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments , and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE O - REGULATORY MATTERS The Company and subsidiary banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. At year-end, consolidated actual capital levels (in thousands) and minimum required levels for the Company and subsidiary banks were:
Minimum Required To Be Well Minimum Required Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Regulations ------ ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- 1999 Total capital (to risk weighted assets) Consolidated $46,622 12.3% $30,238 8.0% $37,797 10.0% The Ohio Valley Bank Company $39,830 11.0% $28,953 8.0% $36,192 10.0% The Jackson Savings Bank $ 2,675 28.5% $ 750 8.0% $ 937 10.0% Tier 1 capital (to risk weighted assets) Consolidated $41,893 11.1% $15,119 4.0% $22,678 6.0% The Ohio Valley Bank Company $31,304 8.6% $14,477 4.0% $21,715 6.0% The Jackson Savings Bank $ 2,558 27.3% $ 375 4.0% $ 562 6.0% Tier 1 capital (to average assets) Consolidated $41,893 8.1% $20,707 4.0% $25,884 5.0% The Ohio Valley Bank Company $31,304 6.3% $19,827 4.0% $24,783 5.0% The Jackson Savings Bank $ 2,558 14.1% $ 546 3.0% $ 910 5.0% 1998 Total capital (to risk weighted assets) Consolidated $44,436 13.8% $25,695 8.0% $32,118 10.0% The Ohio Valley Bank Company $36,930 11.9% $24,803 8.0% $31,004 10.0% The Jackson Savings Bank $ 2,814 39.7% $ 566 8.0% $ 708 10.0% Tier 1 capital (to risk weighted assets) Consolidated $40,421 12.6% $12,847 4.0% $19,271 6.0% The Ohio Valley Bank Company $29,055 9.4% $12,402 4.0% $18,602 6.0% The Jackson Savings Bank $ 2,642 37.3% $ 283 4.0% $ 425 6.0% Tier 1 capital (to average assets) Consolidated $40,421 9.3% $17,385 4.0% $21,731 5.0% The Ohio Valley Bank Company $29,055 7.0% $16,627 4.0% $20,784 5.0% The Jackson Savings Bank $ 2,642 16.8% $ 471 3.0% $ 786 5.0%
The Company and subsidiary banks at year-end 1999 were categorized as well capitalized. Management is not aware of any event or circumstances subsequent to year-end that would change the Company's or subsidiary banks' capital structure. Dividends paid by the subsidiaries are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the subsidiaries to the Company is subject to restrictions by regulatory authorities. These restrictions generally limit dividends to the current and prior two years retained earnings. At December 31, 1999, approximately $11,551 of the subsidiaries' retained earnings were available for dividends under these guidelines. In addition to these restrictions, as a practical matter, dividend payments cannot reduce regulatory capital levels below minimum regulatory guidelines. These restrictions do not presently limit the Company from paying dividends at its historical level. NOTE P - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION Below is condensed financial information of Ohio Valley Banc Corp. In this information, the parent's investment in subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries since acquisition. This information should be read in conjunction with the consolidated financial statements. CONDENSED STATEMENTS OF CONDITION at December 31: Assets 1999 1998 ---- ---- Cash and cash equivalents $ 50 $ 50 Interest-bearing balances with subsidiaries 1,060 6,804 Investment in subsidiaries 36,205 33,534 Notes receivable - subsidiaries 9,455 8,321 Other assets 101 65 ------- ------- Total assets $46,871 $48,774 ======= ======= Liabilities Notes Payable $ 3,955 $ 7,878 Other liabilities 208 216 ------- ------- Total liabilities 4,163 8,094 ------- ------- Shareholders' Equity Total shareholders' equity 42,708 40,680 ------- ------- Total liabilities and shareholders' equity $46,871 $48,774 ======= ======= CONDENSED STATEMENTS OF INCOME Years ended December 31: 1999 1998 1997 ---- ---- ---- Income: Interest on deposits $ 102 $ 107 $ 48 Interest on loans 12 54 70 Interest on notes 502 386 287 Other operating income 3 Dividends from bank subsidiary 425 1,000 1,000 Expenses: Interest on notes 263 196 62 Operating expenses 153 181 105 ------ ------ ------ Income before federal income taxes and equity in undistributed earnings of subsidiaries 625 1,173 1,238 Income tax expense (68) (85) (80) Equity in undistributed earnings of subsidiaries 3,735 3,042 2,624 ------ ------ ------ Net Income $4,292 $4,130 $3,782 ====== ====== ====== NOTE P - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued) CONDENSED STATEMENT OF CASH FLOWS Years ended December 31: 1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net income $4,292 $4,130 $3,782 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (3,735) (3,042) (2,624) Amortization 12 Change in other assets (36) 1,198 (1,256) Change in other liabilities (8) 111 56 ------ ------ ------ Net cash provided by operating activities 513 2,397 (30) ------ ------ ------ Cash flows from investing activities: Change in other short-term investments (948) (4,434) (875) Change in subsidiary line of credit (186) 1,750 (1,454) Change in interest-bearing deposits 5,744 (6,562) 1,403 ------ ------ ------ Net cash used in investing activities 4,610 (9,246) (926) ------ ------ ------ Cash flows from financing activities: Change in other short-term borrowings (3,923) 7,003 875 Cash dividends paid (1,877) (1,506) (1,396) Cash paid in lieu of fractional shares in stock split (15) (7) (11) Proceeds from issuance of common stock 881 1,359 1,488 Purchases of treasury stock (189) ------ ------ ------ Net cash used in financing activities (5,123) 6,849 956 ------ ------ ------ Cash and cash equivalents: Change in cash and cash equivalents 0 0 0 Cash and cash equivalents at beginning of year 50 50 50 ------ ------ ------ Cash and cash equivalents at end of year $ 50 $ 50 $ 50 ====== ====== ====== NOTE Q - ACQUISITION AND INTANGIBLE ASSETS Effective September 24, 1999, the Bank acquired from Huntington National Bank (HNB) certain assets and assumed certain deposits and other liabilities in accordance with a purchase and assumption agreement of the same date. The acquisition was accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed have been recorded based on their estimated fair market value at the date of acquisition. A summary of assets acquired and liabilities assumed follow: Cash $ 428 Premises and equipment 885 Funds received from HNB 18,933 Goodwill 1,442 ------- Total assets $21,688 ======= Deposit liabilities $21,590 Accrued interest payable and other liabilities 98 ------- Total liabilities $21,688 ======= Goodwill totaled $1,412 at December 31, 1999 and is being amortized over an original term of 12 years on a straight line basis. Amortization expense for goodwill totaled $30 for 1999. Effective December 15, 1998 Jackson Savings Bank, Jackson, Ohio was acquired in a business combination accounted for as a pooling of interests. A total of 74,167 shares of the Company's common stock were issued in exchange for all of the outstanding shares of Jackson and Jackson became a wholly owned subsidiary of the Company. The consolidated financial statements have been restated to include the effect of Jackson for all periods presented based on the historical amounts reported by Jackson. The following is a summary of the separate results of operations of the Company and Jackson for the two years ended December 31, 1998. Years ended December 31: 1998 1997 Net interest income Company $18,988 $16,408 Jackson 512 528 ------- ------- Combined $19,500 $16,936 ======= ======= Net income Company $ 3,788 $ 3,680 Jackson 342 102 ------- ------- Combined $ 4,130 $ 3,782 ======= ======= SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarters Ended 1999 Mar. 31 Jun. 30 Sept. 30 Dec. 31 Total interest income $9,437 $9,890 $10,214 $10,465 Total interest expense 4,376 4,558 4,765 5,138 Net interest income 5,061 5,332 5,449 5,327 Provision for loan losses 448 557 437 861 Net Income 1,032 1,141 1,097 1,022 Net income per share $ .29 $ .33 $ .31 $ .29 1998 Total interest income $8,181 $8,720 $ 8,981 $ 9,309 Total interest expense 3,683 3,839 4,027 4,142 Net interest income 4,498 4,881 4,954 5,167 Provision for loan losses 357 535 491 912 Net Income 967 994 1,004 1,165 Net income per share $ .28 $ .28 $ .29 $ .33 1997 Total interest income $7,435 $7,804 $ 8,025 $ 8,189 Total interest expense 3,451 3,619 3,694 3,753 Net interest income 3,984 4,185 4,331 4,436 Provision for loan losses 300 202 266 477 Net Income 810 934 962 1,076 Net income per share $ .24 $ .27 $ .28 $ .31 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Ohio Valley Banc Corp. Gallipolis, Ohio We have audited the accompanying consolidated statements of condition of Ohio Valley Banc Corp., as of December 31, 1999 and 1998 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ohio Valley Banc Corp. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Columbus, Ohio February 3, 2000 SUMMARY OF COMMON STOCK DATA OHIO VALLEY BANC CORP. Years ended December 31, 1999 and 1998 INFORMATION AS TO STOCK PRICES AND DIVIDENDS: The market for the common stock of the Company is not highly active and trading has historically been limited. On February 9, 1996, the Company's common stock was established on NASDAQ securities market under the symbol "OVBC". Prior to this date a limited market was created in the first quarter of 1992 through the Ohio Company. The following table shows bid and ask quotations for the Company's common stock during 1999 and 1998. The range of market price is compiled from data provided by the broker based on limited trading and have been restated for the 25% stock split in 1999 and the 50% stock split in 1998. The quotations are inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions. 1999 Low Bid High Bid Low Ask High Ask - ---- ------- -------- ------- -------- First Quarter $32.80 $33.60 $33.60 $35.20 Second Quarter 31.25 34.00 32.38 36.00 Third Quarter 29.25 33.50 29.50 35.00 Fourth Quarter 31.25 35.00 32.00 35.75 1998 Low Bid High Bid Low Ask High Ask - ---- ------- -------- ------- -------- First Quarter $18.40 $22.13 $19.20 $23.06 Second Quarter 21.86 33.60 22.40 35.20 Third Quarter 32.00 32.40 32.80 34.40 Fourth Quarter 32.00 33.40 33.25 35.60 Dividends per share 1999 1998 - ------------------- ---- ---- First Quarter $.11 $.11 Second Quarter .14 .11 Third Quarter .14 .11 Fourth Quarter .14 .11 Shown above is a table which reflects the dividends paid per share as restated for the 25% stock split in 1999 and the 50% stock split in 1998 on the Company's common stock. This disclosure is based on the weighted average number of shares for each year and does not indicate the amount paid on the actual shares outstanding at the end of each quarter. As of December 31, 1999 the number of holders of common stock was 1,766 an increase from 1,600 shareholders at December 31, 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS The purpose of this discussion is to provide an analysis of the Company's financial condition and results of operations which is not otherwise apparent from the audited consolidated financial statements included in this report. The accompanying consolidated financial information has been prepared by management in conformity with generally accepted accounting principles and is consistent with that reported in the consolidated statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following tables and related discussion. RESULTS OF OPERATIONS: SUMMARY Ohio Valley Banc Corp. generated earnings of $4,292 for 1999 an increase of 3.9% from 1998. Net income was up 9.2% in 1998. Net income per share of $1.22 for 1999 represented continued growth from $1.18 in 1998 and $1.10 in 1997. Asset growth for 1999 was $74,609 or 16.7% which grew total assets to $522,057. The Company's return on assets (ROA) declined to .88% for 1999 compared to 1998's ROA of 1.01% and 1997's ROA of 1.02%. Return on equity (ROE) was 10.29% for 1999 compared to 10.69% for 1998 and 10.98% for 1997. The average of the bid and ask price for the Company's stock was $33.625 at December 31, 1999 compared to $33.20 at year-end 1998 and $19.46 at year-end 1997. NET INTEREST INCOME The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense on the liabilities used to fund those assets. Net interest income is affected by changes in both the average volume and mix of the balance sheet and the level of interest rates for financial instruments. Changes in net interest income are measured by net interest margin and net interest spread. Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Both of these are reported on a taxable equivalent basis. Net interest margin is greater than net interest spread due to the interest earned on interest-earning assets funded from noninterest bearing funding sources, primarily demand deposits and stockholders' equity. Following is a discussion of changes in interest-earning assets, interest-bearing liabilities and the associated impact on interest income and interest expense for the three years ending December 31, 1999. Tables I and II have been prepared to summarize the significant changes outlined in this analysis. Net interest income on a fully tax equivalent basis (FTE) grew $1,664 in 1999, an increase of 8.4% over the $19,882 earned in 1998. The growth was primarily attributable to an increase in earning assets which was partially offset by decline in net interest margin. For 1998, net interest income increased 15.3% over 1997. The growth in net interest income for 1998 was attributable to a higher level of interest-earning assets combined with a higher net interest margin. For 1999, average earning assets grew by 19.5% as compared to growth of 10.1% in 1998. Driving the growth in earning assets was the growth in average loan balances. Average total loans expanded $76,961 or 25.2% from 1998 and represented 83.4% of earning assets. This compares to average loan growth of 12.5% for 1998 and loans representing 79.6% of earning assets. Management focuses on generating loan growth as this portion of earning assets provides the greatest return to the Company. Although loans comprise a larger percentage of earning assets, management is comfortable with the current level of loans based on collateral values, the balance of the allowance for loan losses and the Company's well-capitalized status. Average securities declined from 19.9% of earning assets for 1997 to 15.9% in 1999. Management maintains securities at a dollar level adequate enough to provide ample liquidity and cover pledging requirements. Average interest-bearing liabilities increased 22.1% between 1998 and 1999 and increased 9.1% between 1997 and 1998. The composition of interest-bearing liabilities for 1999 has continued to shift away from time deposits which represented 53.7% of interest-bearing liabilities in 1999 compared to 58.7% in 1998 and 64.5% in 1997. More emphasis has been placed on other borrowed funds and NOW accounts. Borrowed funds comprised 12.8% of interest-bearing liabilities for 1999 up from 8.3% in 1998 and 5.1% in 1997. The use of borrowed funds has been a cost-effective funding source for the Company's positive loan growth. The average cost of borrowed funds for 1999 is 5.39% compared to time deposits average cost of 5.50%. The average balance of NOW accounts increased $29,953 from 1998 to 1999 and comprise 16.7% of interest-bearing liabilities as compared to 11.2% in 1998 and 10.7% in 1997. Although these balances were influenced by more aggressive pricing on NOW accounts, the average cost was less than traditional time deposits. The net interest margin declined .48% to 4.70% in 1999 from 5.18% in 1998. This follows a .23% increase in the net interest margin in 1998. Contributing to the decline in net interest margin in 1999 was the decrease in the net interest spread of .37%. The yield on earning assets decreased .46% compared to funding costs decreasing .09%. The yield on interest-earning assets declined due to the return on average loans declining .72% from 1998 in relation to lower interest rates and competition. This was partially offset by the higher relative balances in loans. Total funding costs decreased in relation to the cost of time deposits declining .23% and the balance of time deposits comprising a smaller percentage of interest-bearing liabilities. Additionally, the cost of NOW accounts increased .42% and the cost of other borrowed money declined .26%. The impact of interest free funds on the net interest margin decreased from .76% in 1998 to .65% in 1999. Contributing to the decline was the slower growth rate in demand deposits and capital versus the exceptional growth in interest-bearing liabilities. The .11% decrease in the contribution of interest free funding sources combined with the .37% decrease in the net interest spread yielded the .48% decrease in the net interest margin. The 1998 increase in net interest margin was due to a .20% gain in net interest spread with asset yields rising .16% versus funding costs decreasing .04%. The gain in net interest spread was complemented by an increase of .03% from interest free funding sources. OTHER INCOME AND EXPENSE Total other income, excluding securities gains and losses, increased $497 a 21.4% gain over 1998. Total other income increased 24.6% in 1998. Driving the Company's growth in noninterest income was the increase in service charge income from the increase in the deposit base from continued expansion into new markets. Service charges on deposit accounts were up $268 in 1999 and $181 in 1998. Additionally, other operating income increased $216 over 1998 and $257 over 1997 with gains in fee income from debit and credit card transactions, commissions earned from loan insurance sales and loan service fees. Total other expense increased $1,859 or 13.1% in 1999 and $1,908 or 15.5% in 1998. The most significant expense in this category is salary and employee benefits. Through new branch openings and acquisitions, the number of full-time equivalent employees increased from 222 at year-end 1997 to 270 at year-end 1999. Salary and employee benefits increased $1,101 or 13.6% from 1998 to 1999 and increased $777 or 10.6% from 1997 to 1998. Associated with the new offices was an increase in occupancy expense and furniture and equipment expense. Increased costs are related to depreciation, rental property costs and utilities. The increase in other operating expenses was related to advertising, computer software depreciation, conversion expenses from the purchase of the Huntington branches, merger related expenses associated with the acquisition of Jackson Savings and general inflationary increases. YEAR 2000 The Company is pleased to announce that it did not experience any "Y2K" related problems at the turn of the century, nor does it anticipate any problems developing during the year 2000. During 1997, the Company began preparing for "Y2K" by performing thorough inventories of all its computer equipment, related software and technology, as well as preparing a contingency plan for "Y2K." During 1998 and 1999, the Company continued its preparation by testing software and processing systems for the year 2000. No problems were found. As a result of this extensive preparation and planning, the Company was well prepared for any "Y2K" related problems and did not experience any losses. Excluding personnel costs, the Company incurred approximately $40 in expense to prepare for the year 2000. FINANCIAL CONDITION: SECURITIES The second largest component of earning assets is securities. Management's goal in structuring the portfolio is to maintain a prudent level of liquidity while providing an acceptable rate of return without sacrificing asset quality. Maturing securities have historically provided sufficient liquidity such that management has not sold a debt security in several years. The portfolio consists primarily of U.S. Treasury notes and U.S. Government agency bonds which comprise approximately 69% of total securities. As a result, the portfolio's exposure to credit risk is minimal. The weighted average FTE yield on debt securities at year-end 1999 was 6.42% as compared to 6.52% at year-end 1998. Given current reinvestment rates, the yield on securities should remain level in 2000. Table III provides a summary of the portfolio by category and remaining contractual maturity. Issues classified as equity securities have no stated maturity date and are not included in Table III. LOANS In 1999, total loans increased $64,028 or 18.4% to reach $411,158. The largest contributor was residential mortgage loans which experienced tremendous growth of $37,975 or 23.2% driven by low interest rates and newer market areas. Over half of this growth occurred in the newer markets of Pike and Franklin counties in Ohio as well as Mason county in West Virginia. The Company generally originates real estate loans for its own portfolio, as very few loans are sold on the secondary market. Commercial loans increased $23,469 or 24.4% with approximately one-third of this increase coming from loan originations within the West Virginia market area. Furthermore, the newer markets in Jackson and Meigs counties of Ohio contributed another one-third of this increase. Consumer loans grew $3,278 representing a 3.8% gain. A portion of the consumer loans were originated through indirect lending, primarily from area automobile dealers, and are subject to the same underwriting as our regular loans. Tables V, VI, and VII have been provided to enhance the understanding of the loan portfolio and the allowance for potential loan losses. Management evaluates the adequacy of the allowance for loan losses quarterly based on several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, and management's estimate of probable losses. Actual losses on loans are reflected as reductions in the reserve and are referred to as charge-offs. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in management's opinion, to maintain the allowance for loan losses at an adequate level. The allowance required is primarily a function of the relative quality of the loans in the loan portfolio, the mix of loans in the portfolio and the rate of growth of outstanding loans. The ratio of net charge-offs to average total loans at December 31, 1999 was .40% down from .46% at December 31, 1998 due mostly to declining losses in the consumer loan area. Net charge-offs in both the real estate and commercial loan areas were relatively low, which represent the overall quality of these segments of the loan portfolio. Nonperforming loans, which include nonaccrual loans and accruing loans past due 90 days or more, are returned to performing status when the loan is brought current and has performed in accordance with contractual terms. Nonperforming loans were approximately $6,664 or 1.62% of outstanding balances at December 31, 1999 compared to $3,087 or .89% of outstanding balances at the end of 1998. Approximately 54% of this increase was attributed to two large commercial lines. Near the end of 1999, management wrote down one of the two lines by $331. At this time, management believes it has taken the necessary steps to reduce the risks associated with these lines. For 1999, provision expense was up slightly by $8 compared to the provision expense for 1998. This minimal increase in provision expense was largely due to the increases in real estate mortgages for 1999 which typically represent relatively lower risk loans due to higher, more stable value of collateral and therefore require a lower allocation of the allowance for loan losses. As a percentage of total loans, the allowance for loan losses at December 31, 1999 was 1.23%, unchanged from December 31, 1998. While nonperforming loan balances have increased from December 31, 1998, management believes the allowance is adequate to absorb inherent losses in the portfolio based on collateral values as well as a higher relative volume of real estate mortgages. Management anticipates that it will continue its provision to the allowance for loan losses at its current level for the foreseeable future based on the current status of nonperforming loans. DEPOSITS Interest-earning assets are funded primarily by core deposits. The accompanying table IV shows the composition of total deposits as of December 31, 1999. Total deposits grew $78,014 or 23.8% to reach $405,331 by year-end 1999. A contributing factor to this increase was the purchase of two West Virginia branches in the third quarter of 1999 that allowed the Company to acquire $21,590 in total deposits. Leading the growth in deposits was certificates of deposits with an increase of $57,839 which helped to fund loan growth as well as reduce borrowed funds. NOW accounts also contributed to deposit growth with an increase of $27,256. The Company's new Gold Club product, which offers a NOW account combined with other banking benefits, led to this increase. This new product also contributed to the $7,684 decrease in money market accounts. Additionally, noninterest-bearing deposits increased $483. With the expansion in new and current markets, management expects continued growth in deposits in 2000. FUNDS BORROWED In addition to traditional deposits, the Company considers borrowed funds when evaluating funding sources. Other funds borrowed consist primarily of Federal Home Loan Bank (FHLB) advances, securities sold under agreements to repurchase, and promissory notes. FHLB advances are subject to collateral agreements and are secured by qualifying first mortgage loans and FHLB stock. Management has utilized FHLB advances to fund long-term assets and to fund short-term liquidity needs. At December 31, 1999, the balance of FHLB advances totaled $38,746 compared to $47,714 at December 31, 1998. FHLB borrowings have two distinct advantages: they can be less expensive than deposits for comparable terms and they are not subject to early redemption. Management will continue to evaluate borrowings from the FHLB as an alternative funding source. Promissory notes are primarily associated with funding loans at Loan Central and were issued with terms of one year or less. CAPITAL RESOURCES The Company maintains a capital level that exceeds regulatory requirements as a margin of safety for its depositors and shareholders. Shareholders' equity totaled $42,708 at December 31, 1999, compared to $40,680 at December 31, 1998, which represents growth of 5.0%. All of the capital ratios exceeded the regulatory minimum guidelines as identified in Note O "Regulatory Matters". Cash dividends paid of $1,877 for 1999 represents a 22.4% increase over the cash dividends paid during 1998. The increase in cash dividends paid is due to the additional shares outstanding during 1999 which were not outstanding during 1998 and an increase in dividends paid per share. The Company maintains a dividend reinvestment and stock purchase plan. The plan allows shareholders to purchase additional shares of company stock. A benefit of the plan is to permit the shareholders to reinvest cash dividends as well as make supplemental purchases without the usual payment of brokerage commissions. During 1999, the Company issued 16,756 shares under the dividend reinvestment and stock purchase plan. At December 31, 1999, approximately 73% of the shareholders were enrolled in the dividend reinvestment plan. Members of the plan invested $632 in 1999 which represents 34% of year-to-date dividends paid. As part of the Company's stock repurchase program, management was able to utilize reinvested dividends and voluntary cash to purchase shares on the open market and redistribute them through the dividend reinvestment plan. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company's goal for interest rate sensitivity management is to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations. Interest rate risk ("IRR") is the exposure of the Company's financial condition to adverse movements in interest rates. Accepting this risk can be an important source of profitability, but excessive levels of IRR can threaten the Company's earnings and capital. It is management's policy not to position the balance sheet so as to expose the Company to levels of interest rate risk which could significantly impair earnings performance or endanger capital. The Company's asset and liability committee monitors the rate sensitivity of the balance sheet weekly through parameters established by the Board of Directors. The committee uses an interest rate sensitivity gap analysis prepared quarterly to monitor the relationship between the maturity and repricing of its interest-earning assets and interest-bearing liabilities. Interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets and interest-bearing liabilities maturing or repricing within a specified time period. A gap position is considered positive when the amount of interest sensitive assets exceed the amount of interest sensitive liabilities, and is considered negative when the amount interest sensitive liabilities exceed the amount of interest sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would negatively affect net interest income. This analysis assumes that interest rate changes for interest-earning assets and interest-bearing liabilities are of the same magnitude and velocity, whereas actual interest rate changes generally differ in magnitude and velocity. Based on the gap model, the Company was liability sensitive in the short term and asset sensitive for periods over five years. The Company's exposure to interest rate risk is primarily managed through the selection of the type and repricing characteristics of interest-earning assets and interest-bearing liabilities. Management can influence the Company's gap position by offering fixed or variable rate products, by changing the terms of new loans, investments and time deposits, or by selling existing assets or repaying certain liabilities. The Company's ability to manage its gap position can be challenged by customer preferences which may not meet the Company's goals. The FHLB assists in funding interest-earning assets by providing advances with similar repricing characteristics as many of the loans offered by the Company. Table VIII provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents repricing opportunities strictly by maturity date without regard for repricing dates for variable rate products. Noninterest-bearing checking deposits assume an annual decay rate of 13% and savings and interest-bearing checking accounts assume an annual decay rate of 20% based on the Company's historical experience. A fundamental difference between the table and the gap model previously discussed is that the table presents financial intruments based on the date of expected cash flows while gap analysis only focuses on repricing characteristics of financial instruments. Liquidity management should focus on matching the cash inflows and outflows within the Company's natural market for loans and deposits. This goal is accomplished by maintaining sufficient asset liquidity along with stable core deposits. The primary sources of liquidity are interest-bearing balances with banks, federal funds sold and the maturity and repayment of investments and loans as well as cash flows provided from operations. The Company has classified $55,371 in securities as available for sale at December 31, 1999. In addition, the Federal Home Loan Bank in Cincinnati offers advances to the Bank which further enhances the Bank's ability to meet liquidity demands. The Bank also has the ability to purchase federal funds from several of its correspondent banks. Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company's financial condition. See statement of cash flows. INFLATION Consolidated financial data included herein has been prepared in accordance with generally accepted accounting principles (GAAP). Presently, GAAP requires the Company to measure financial position and operating results in terms of historical dollars with the exception of securities available-for-sale, which are carried at fair value. Changes in the relative value of money due to inflation or deflation are generally not considered. In management's opinion, changes in interest rates affect the financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as monetary and fiscal policies. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today's volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree. FORWARD LOOKING STATEMENTS Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as "believes," "anticipates," "expects," and similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, that could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to: changes in political, economic or other factors such as inflation rates, recessionary or expansive trends, and taxes; competitive pressures; fluctuations in interest rates; the level of defaults and prepayment on loans made by the Company; unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise. CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
Table I December 31 ------------------------------------------------------------------------------------ 1999 1998 1997 (dollars in thousands) -------------------------- -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ------- ------- ---- ASSETS - ------ Interest-earning assets: Interest-bearing balances $ 781 $ 30 3.87% $ 3,079 $ 176 5.71% $ 3,835 $ 194 5.06% with banks Federal funds sold 2,485 121 4.87 3,910 214 5.47 3,728 202 5.40 Securities: Taxable 56,153 3,490 6.21 55,092 3,457 6.27 56,768 3,564 6.28 Tax exempt 16,849 1,183 7.02 16,307 1,136 6.97 12,700 911 7.17 Loans 382,353 35,559 9.30 305,392 30,590 10.02 271,535 26,897 9.91 -------- ------- ----- -------- ------- ----- -------- ------- ----- Total interest- earning assets 458,621 40,383 8.81% 383,780 35,573 9.27% 348,566 31,768 9.11% Noninterest-earning assets: Cash and due from banks 13,146 9,268 7,968 Other nonearning assets 21,517 19,065 16,322 Allowance for loan losses (4,652) (3,631) (3,304) -------- -------- -------- Total noninterest- earning assets 30,011 24,702 20,986 Total assets $488,632 $408,482 $369,552 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts $ 66,105 2,514 3.80% $ 36,152 1,222 3.38% $ 31,568 1,048 3.32% Savings and Money Market 52,628 1,426 2.71 52,671 1,381 2.62 47,216 1,181 2.50 Time deposits 212,091 11,662 5.50 189,955 10,886 5.73 191,317 10,934 5.72 Repurchase agreements 13,961 510 3.65 18,148 685 3.77 11,352 435 3.83 Other borrowed money 50,539 2,725 5.39 26,832 1,517 5.65 15,182 919 6.05 -------- ------- ----- -------- ------- ----- -------- ------- ----- Total interest- bearing liabilities 395,324 18,837 4.76% 323,758 15,691 4.85% 296,635 14,517 4.89% Noninterest-bearing liabilities: Demand deposit accounts 45,226 40,715 34,195 Other liabilities 6,352 5,370 4,273 -------- -------- ------ Total noninterest- bearing liabilities 51,578 46,085 38,468 Shareholders' equity 41,730 38,639 34,449 -------- -------- -------- Total liabilities and shareholders' equity $488,632 $408,482 $369,552 ======== ======== ======== Net interest earnings $21,546 $19,882 $17,251 ======= ======= ======= Net interest earnings as a percent of interest-earning assets 4.70% 5.18% 4.95% ----- ----- ----- Net interest rate spread 4.05% 4.42% 4.22% ----- ----- ----- Average interest-bearing liabilities to average earning assets 86.20% 84.36% 85.10% ===== ===== =====
Fully taxable equivalent yields are calculated assuming a 34% tax rate, net of nondeductible interest expense. Average balances are computed on an average daily basis. The average balance for available-for-sale securities includes the market value adjustment. However, the calculated yield is based on the securities' amortized cost. Average loan balances include nonaccruing loans. Loan income includes cash received on nonaccruing loans. RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II 1999 1998 ----------------------------- ---------------------------- (dollars in thousands) Increase (Decrease) Increase (Decrease) From Previous Year Due to From Previous Year Due to ----------------------------- ---------------------------- Volume Yield/Rate Total Volume Yield/Rate Total ------ ---------- ----- ------ ---------- ----- INTEREST INCOME - --------------- Interest-bearing balances with banks $ (102) $ (44) $ (146) $ (41) $ 23 $ (18) Federal funds sold (71) (22) (93) 10 2 12 Securities: Taxable 66 (33) 33 (105) (2) (107) Tax exempt 39 8 47 251 (26) 225 Loans 7,279 (2,310) 4,969 3,389 304 3,693 ------- ------- ------- ------- ------- ------- Total interest income 7,211 (2,401) 4,810 3,504 301 3,805 INTEREST EXPENSE - ---------------- NOW accounts 1,122 170 1,292 155 19 174 Savings and Money Market (1) 46 45 141 59 200 Time deposits 1,231 (455) 776 (79) 31 (48) Repurchase agreements (153) (22) (175) 257 (7) 250 Other borrowed money 1,281 (73) 1,208 662 (64) 598 ------- ------- ------- ------- ------- ------- Total interest expense 3,480 (334) 3,146 1,136 38 1,174 ------- ------- ------- ------- ------- ------- Net interest earnings $ 3,731 $(2,067) $ 1,664 $ 2,368 $ 263 $ 2,631 ======= ======= ======= ======= ======= =======
The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. Fully taxable equivalent yield assumes a 34% tax rate, net of related nondeductible interest expense. SECURITIES
Table III MATURING --------------------------------------------------------------------------- As of December 31, 1999 Within After One but After Five but (dollars in thousands) One Year Within Five Years Within Ten Years After Ten Years -------- ----------------- ---------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- U.S. Treasury securities $ 5,005 6.31% $ 2,505 6.42% Obligations of U.S. Government agency securities 1,519 6.01% 40,003 6.07% Obligations of states and political subdivisions 2,389 7.25% 7,486 7.67% $3,460 7.62% $2,355 7.12% Mortgage-backed securities 7 8.00% 732 5.95% 1,769 5.65% ------- ---- ------- ---- ------ ---- ------ ---- Total debt securiities $ 8,913 6.51% $50,001 6.32% $4,192 7.33% $4,124 6.47% ======= ==== ======= ==== ====== ==== ====== ====
Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions using a 34% rate. Weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Mortgage-backed securities, which have prepayment provisions, are assigned to a maturity based on estimated average lives. Securities are shown at their carrying values which include the market value adustments for available-for-sale securities. DEPOSITS Table IV as of December 31 (dollars in thousands) 1999 1998 1997 ---- ---- ---- Interest-bearing deposits: NOW accounts $ 74,447 $ 47,190 $ 29,439 Money Market 12,419 20,103 15,455 Savings accounts 29,676 33,624 33,453 IRA accounts 34,938 30,870 28,102 Certificates of Deposit 207,407 149,569 162,488 -------- -------- -------- 358,887 281,356 268,937 Noninterest-bearing deposits: Demand deposits 46,444 45,961 37,100 -------- -------- -------- Total deposits $405,331 $327,317 $306,037 ======== ======== ======== ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES Table V Years Ended December 31 (dollars in thousands) 1999 1998 1997 1996 1995 - ---------------------- ---- ---- ---- ---- ---- Commercial loans $1,278 $1,132 $ 879 $ 887 $ 328 Percentage of loans to total loans 29.33% 28.18% 28.79% 29.08% 20.06% Real estate loans 270 264 218 338 328 Percentage of loans to total loans 49.04% 47.14% 43.07% 42.56% 50.49% Consumer loans 1,444 1,360 949 799 597 Percentage of loans to total loans 21.63% 24.68% 28.14% 28.36% 29.45% Unallocated 2,063 1,521 1,344 1,156 1,228 ------- ------- ------- ------- ------- Allowance for Loan Losses $5,055 $4,277 $3,390 $3,180 $2,481 ======= ======= ======= ======= ======= 100.00% 100.00% 100.00% 100.00% 100.00% ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans .40% .46% .38% .25% .19% ======= ======= ======= ======= ======= The above allocation is based on estimates and subjective judgements and is not necessarily indicative of the specific amounts or loan categories in which losses may ultimately occur. SUMMARY OF NONPERFORMING AND PAST DUE LOANS Table VI (dollars in thousands) 1999 1998 1997 1996 1995 - ---------------------- ---- ---- ---- ---- ---- Impaired loans $1,413 $ 624 $ 430 $ 449 $ 579 Past due-90 days or more and still accruing 3,711 2,106 3,607 2,707 $2,785 Nonaccrual 2,953 981 1,019 737 963 Accruing loans past due 90 days or more to total loans .90% .61% 1.29% 1.02% 1.23% Nonaccrual loans as a % of total loans .72% .28% .36% .28% .42% Impaired loans as a % of total loans .34% .18% .15% .17% .25% Allowance for loans losses as a % of total loans 1.23% 1.23% 1.21% 1.20% 1.09% Management believes that the impaired loan disclosures are comparable to the nonperforming loan disclosures except that the impaired loan disclosures do not include single family residential or consumer loans which are analyzed in the aggregate for loan impairment purposes. During 1999, the Company did not recognize any interest income on impaired loans. Loans not included above that management feels have loss potential total approximately $600. The Company has no assets which are considered to be troubled debt restructurings. Management formally considers placing a loan on nonaccrual status when collection of principal or interest has become doubtful. Furthermore, a loan should not be returned to the accrual status unless either all delinquent principal or interest has been brought current or the loan becomes well secured and is in the process of collection. MATURITY AND REPRICING DATA OF LOANS
Table VII As of December 31, 1999 Maturing/Repricing (dollars in thousands) Within After One but One Year Within Five Years After Five Years Total -------- ----------------- ---------------- ----- Commercial loans and other $ 65,921 $ 8,575 $ 46,095 $120,591 Real estate loans 54,081 15,712 131,832 201,625 Consumer loans 22,768 56,245 9,929 88,942 -------- ------- -------- -------- Total loans $142,770 $80,532 $187,856 $411,158 ======== ======= ======== ========
Loans maturing or repricing after one year with: Variable interest rates $ 25,882 Fixed interest rates 242,506 -------- Total $268,388 ======== RATE SENSITIVITY ANALYSIS
Table VIII (dollars in thousands) As of December 31, 1999 Principal Amount Maturing in: There- Fair Value 2000 2001 2002 2003 2004 after Total 12/31/99 Rate-Sensitive Assets: Fixed interest rate loans $ 8,878 $ 8,584 $ 17,232 $ 18,867 $ 19,707 $181,722 $254,990 $260,319 Average interest rate 9.77% 12.02% 11.73% 10.79% 9.65% 8.01% 8.79% Variable interest rate loans $ 43,495 $ 3,626 $ 4,003 $ 3,020 $ 7,082 $ 94,942 $156,168 $155,109 Average interest rate 10.05% 10.51% 9.32% 8.65% 8.90% 7.81% 8.60% Fixed interest rate securities $ 8,904 $ 10,285 $ 11,336 $ 19,475 $ 9,693 $ 12,591 $ 72,284 $ 71,263 Average interest rate 6.52% 6.40% 6.24% 6.19% 6.60% 6.94% 6.45% Other interest-bearing assets $ 806 $ 806 $ 806 Average interest rate 2.48% 2.48% Rate-Sensitive Liabilities: Noninterest-bearing checking $ 6,224 $ 5,390 $ 4,667 $ 4,042 $ 3,500 $ 22,621 $ 46,444 $ 46,444 Savings & Interest-bearing checking $ 18,106 $ 15,010 $ 12,496 $ 10,444 $ 8,763 $ 51,723 $116,542 $116,542 Average interest rate 3.20% 3.26% 3.32% 3.38% 3.43% 3.72% 3.49% Time deposits $178,213 $ 40,781 $ 10,412 $ 10,663 $ 937 $ 1,339 $242,345 $242,400 Average interest rate 5.48% 5.60% 5.89% 6.02% 5.56% 7.29% 5.55% Fixed interest rate borrowings $ 16,878 $ 4,365 $ 5,282 $ 3,098 $ 85 $ 8,198 $ 37,906 $ 36,816 Average interest rate 5.40% 5.56% 5.42% 5.71% 5.85% 5.41% 5.45% Variable interest rate borrowings $ 30,113 $ 30,113 $ 30,113 Average interest rate 4.89% 4.89%
KEY RATIOS Table IX 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Return on average assets .88% 1.01% 1.02% .98% .88% Return on average equity 10.29% 10.69% 10.98% 10.82% 10.53% Dividend payout ratio 43.73% 37.13% 37.81% 39.53% 41.59% Average equity to average assets 8.54% 9.46% 9.32% 9.04% 8.33% EX-21 3 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT STATE OF PERCENTAGE NAME INCORPORATION OF OWNERSHIP ---- ------------- ------------ The Ohio Valley Bank Company Ohio 100% Loan Central, Inc. Ohio 100% The Jackson Savings Bank Ohio 100% EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 filed on or about August 4, 1997 of Ohio Valley Banc Corp. of our report dated February 3, 2000 related to the consolidated statements of condition of Ohio Valley Banc Corp. as of December 31, 1999 and 1998 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ending December 31, 1999, which report is incorporated by reference in this Form 10-K. /s/CROWE, CHIZEK AND COMPANY LLP Crowe, Chizek and Company LLP Columbus, Ohio March 30, 2000 EX-27 5 12/31/98 FINANCIALS
9 1,000 12-MOS DEC-31-1999 DEC-31-1999 19,000 806 0 0 55,371 16,009 15,892 411,158 5,055 522,057 405,331 45,318 5,999 22,701 0 0 3,549 39,159 522,057 35,539 4,316 151 40,006 15,602 18,837 21,169 2,303 317 16,060 5,938 5,938 0 0 4,292 1.22 1.22 4.70 2,953 3,711 0 600 4,277 1,793 268 5,055 2,992 0 2,063 In April 1999, the Board of Directors declared a 25% stock split effective April 19, 1999, and prior Financial Data Schedules have not been restated for the recapitalization.
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