Ohio Valley Banc Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. Unless stated otherwise, dollar amounts are in thousands.
Business context and financial results
The company is a community banking and consumer finance business serving southeastern Ohio and western West Virginia. Banking accounted for 95.1% of consolidated revenue in Q3 2023. The company is winding down Race Day Mortgage, citing low loan demand, personnel-retention issues, and lack of profitability; a closure date had not been determined.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $11,376 | $11,845 | $34,712 | $32,388 |
| Provision for credit losses | $888 | $(378) recovery | $1,401 | $(691) recovery |
| Noninterest income | $2,568 | $2,615 | $9,048 | $8,971 |
| Noninterest expense | $10,379 | $10,347 | $31,066 | $30,158 |
| Net income | $2,251 | $3,690 | $9,408 | $9,814 |
| Earnings per share | $0.47 | $0.77 | $1.97 | $2.06 |
Q3 net income fell $1,439 year over year; nine-month net income fell $406. Management attributed the declines to higher credit-loss provision and noninterest expense, and, for Q3, lower net interest income. Nine-month return on assets was 1.00% versus 1.04%; return on equity was 9.21% versus 9.56%.
Financial position, liquidity, and capital
- Assets and loans: Total assets were $1.314 billion, up $103.2 million from year-end 2022. Gross loans reached $961.2 million, up $76.2 million (8.6%); growth included residential real estate, commercial real estate, and consumer lending. Net loans were $953.0 million.
- Deposits and funding: Deposits totaled $1.096 billion, up $67.9 million from year-end. Noninterest-bearing deposits declined $27.9 million while interest-bearing deposits increased $95.8 million. Time deposits grew substantially; brokered deposits were $66.1 million, versus $4.0 million at year-end. Other borrowed funds rose to $45.8 million from $17.9 million, including increased FHLB advances.
- Cash and liquidity: Cash and cash equivalents were $91.2 million, up $45.2 million. Management reported liquid funds of $258.6 million, or 19.7% of assets. Additional stated borrowing availability included $87.5 million from the FHLB and $62.5 million on a Federal Reserve line. Uninsured deposits were $381.7 million, or 34.8% of deposits.
- Debt and capital: Other borrowed funds were $45.8 million and subordinated debentures were $8.5 million. The Bank’s community bank leverage ratio was 11.06%, above the 9% qualifying threshold. Shareholders’ equity was $136.8 million, up $1.8 million from year-end.
- Cash flow, nine months: Operating activities provided $14.1 million; investing activities used $60.7 million; financing activities provided $91.8 million. Cash increased $45.2 million to $91.2 million.
- Credit quality and securities: The loan allowance was $8.2 million, or 0.85% of loans, versus $5.3 million, or 0.60%, at year-end. Nonperforming loans were 0.28% of loans, down from 0.43%. AFS securities had $20.8 million of gross unrealized losses; management attributed these to noncredit factors and reported no AFS credit-loss allowance. AOCI was a $16.5 million loss.
Material changes and management commentary
- Q3 net interest margin declined to 3.85% from 4.03% a year earlier, as deposit repricing, migration into higher-cost CDs, and wholesale funding costs outpaced asset-yield gains. Nine-month margin improved to 4.03% from 3.73%, though the year-over-year margin improvement narrowed during 2023.
- Interest expense on deposits rose sharply year over year. The weighted-average cost of interest-bearing deposits was 1.64% at September 30, 2023, up from 0.28% a year earlier. Management said competition and higher deposit costs may continue to pressure margins.
- The company adopted CECL on January 1, 2023, recording a $2.209 million reduction to retained earnings. The adoption increased loan reserves by $2.162 million and established reserves for unfunded commitments and HTM securities.
- Management intends to emphasize core-deposit growth and retention, deploy funds into higher-yielding loans where opportunities arise, and maintain underwriting quality. It cautioned that slower loan growth could constrain net interest income and margin improvement. No specific earnings or financial guidance was provided.
- Other disclosed risks include changes in interest rates, deposit competition and funding costs, economic conditions, loan defaults, mortgage-market conditions, competition, and regulatory changes. The filing reported no material change to previously disclosed risk factors and no material legal proceedings outside the ordinary course.
Important facts for investors to verify
- Whether deposit competition, time-deposit mix, and wholesale borrowing continue to raise funding costs and compress net interest margin.
- Whether loan growth and credit quality support the allowance level, particularly given the CECL transition, higher provision expense, and increased consumer lending.
- How the company manages liquidity and uninsured deposits, and whether stated FHLB and Federal Reserve borrowing capacity remains available under applicable collateral and other conditions.
- Whether unrealized AFS securities losses remain noncredit-related and whether any liquidity needs could require securities sales before recovery.
- Completion and financial effects of the Race Day wind-down, and progress in replacing any associated income or reducing expenses.